1. Recent Air Regulatory Changes in Colorado Affecting the Oil & Gas Industry By John R. Jacus, Esq. Davis Graham & Stubbs LLP Presented to the Natural Resources & Energy Section of the Colorado Bar Association June 11, 2004

2. Scope of Presentation Ozone Controls in the Denver Deferred Non- Attainment Area Colorado and Region 8 Information Gathering Regarding Oil & Gas Facilities Region 8 Energy Strategy Brief “Heads Up,” Regarding: –Coming BART requirements under Regional Haze Rule –Final Non-Road Diesel Rule –Environmental Defense, et al. V. Norton

3. Ozone Controls in Colorado Denver area made progress under old 1-hour ozone standard (NAAQS), moving from non-attainment to attainment In 1997, EPA changed how it measures ground-level ozone, and promulgated the current 8-hour standard of.080 ppm Biogenic and upwind sources of ozone contribute 55- 65 ppb of the ozone measured by regional monitors

4. Early Action Compact Colorado and air agencies signed compact with EPA in 2002 Defers the negative consequences of possible non- attainment designation by EPA, provided specific controls are implemented according to a fixed timetable to reach attainment in 2007

5. Ozone Controls in Colorado Basic Regulation No. 3 Permit Framework changed December 30, 2002 Previously APEN-exempt condensate storage tanks below 40,000 gal. capacity became regulated, to control flash emissions of VOCs - an ozone precursor Only tanks with less than 730 BBL/year throughout remain APEN-exempt

6. Ozone Control Plan Developed Based on EPA-required air modeling, prepared for CDPHE and the RAQC by Environ Confirmed a number of things about ozone formation in Denver: –Area is NOx limited, i.e., NOx reductions will contribute to O 3 formation in urban core –Key to meeting standard is improvement at the Rocky Flats monitor

7. Ozone Control Plan Modeling very rushed, results delayed even during rulemaking APCD proposed plan relies heavily on VOC controls on gas industry in the ozone control area for its: –engines –condensate tanks and –gas processing plants

8. Expanded Ozone Control Area In light of 8-hour ozone monitoring data, EPA and Colorado both proposed an expanded ozone control area, beyond boundaries of prior Denver air quality control region and former 1-hour ozone non- attainment area Control area includes parts of Rocky Mountain National Park, Weld and Larimer counties to the North

9. Ozone Control/Deferred Non- Attainment Area

10. Specific Ozone Controls Adopted in Regulation Number 7 Engine controls Condensate tank controls Dehydrator controls Gas processing plant controls

11. Engine Controls Natural gas fired reciprocating internal combustion engines (RICE units) Over 500 hp Required to implement catalytic controls for VOCs Lean-burn RICE units subject to exemption if control costs exceed $5000/ton of VOCs Related requirement: EPA’s Federal RICE MACT Only existing 4SRB engines required to add catalytic controls - new rich and lean burn engines will have to control for formaldehyde

12. Condensate Tank Controls Controls atmospheric pressure condensate tanks upstream of gas processing plants for which APENs are required under Regulation No. 3 (> 730 BBL/year production)

13. Condensate Tank Controls Requires an enclosed, smokeless flare with 95% destruction efficiency, or comparable device, on some, not all, tanks to achieve 37.5% VOC reductions in 2005, and 47.5% reductions in 2006

14. Condensate Tank Controls Reductions are reported by April 30, 2006, and April 30, 2007, and are measured against “uncontrolled actual emissions” Pollution prevention to achieve reductions is allowed, encouraged

15. Gas Plant Controls Requires compliance with New Source Performance Standard at 40 CFR Part 63, Subpart KKK in ozone control area Leak detection and repair (LDAR) provisions applicable to both existing and new gas plants in control area

16. Dehydrator Controls 90% efficient control on any still vent or vent from any GCG separator at E&P sites, compressor stations, drip stations or processing plants in control area Allows for various combustion devices or more efficient condenser controls on dehys in control area

17. Some Practical Pointers on Ozone Controls When to file an APEN? How to track reductions? Site specific testing vs. Colorado’s emissions factor for E&P condensate storage tanks H.B. 1435 - Local government notice of control installation Lean-burn engine costs of control - get started now

18. Colorado & Region 8 Information Gathering re: Oil & Gas Facilities Letters sent in January by CDPHE, EPA, Utah, Wyoming and Montana to larger operators Very broad request, seeking much information in regulatory files already, and in specific electronic formats Appears aimed at source aggregation of oil & gas facilities separately permitted to date

19. Source Aggregation Counter-Arguments Only possible when sources are in same industrial grouping, are contagious and adjacent, and under common control EPA’s “support facility” analysis ignores one or more of these conjunctive requirements

20. Source Aggregation Counter-Arguments (cont.) “Adjacent” and “contiguous” are common sense terms States with primacy under CAA to decide issue Distances between separate lease and tract facilities renders them non-adjacent

21. Business Confidentiality of Responses to Statutory Information Requests C.R.S. § 25-11-7-111(4) says APCD “shall assure” the confidentiality of trade secret information gathered, just as under federal and state law Potential problems, burdens on respondents highlighted in CF&I Steel v. APCD, case,

22. EPA Region 8’s Energy Strategy Goal 2: Meet Federal Requirements, Maintain or Improve Environment for Energy Projects –Activity 2: Air –Activity 5: Enforcement

23. BART Requirements of the Regional Haze Rule Best available retrofit technology For sources with > 250 tpy of visibility - impairing pollution and in one of 26 categories - not including E&P facilities Built between ’62 and ’77 States to conduct BART determinations Rule to go final April 15, 2005 GCYTC annex approved by EPA

24. PM Standards Reveiw CASAC review of EPA staff paper Denver and all of Colorado well below existing standards Denver barely below possible lowered standard Not just an urban issue Final staff paper due out in September Proposed rule changes due out by March 31, 2005

25. Non-Road Diesel Rule Reduces sulfur in fuel to allow for better engine controls Will affect new and existing diesel engines in service over period of years out to 2030 Convergence of Ozone, PM and Regional Haze rules could be greatly complicated by regional litigation

26. Regional Litigation – Environmental Defense v. Norton (D. Mt.) Based on air impacts of CBM development in Wyoming and Montana Has very broad implications for energy industry

27. Conclusion – Questions and Answers

28. To obtain PowerPoint slides via email: Contact John Jacus at john.jacus@dgslaw.com