What’s in a Name: EPA Region VIII’s (Non-)Application of the E&P Exemption to Natural Gas Condensate John R. Jacus & Dean C. Miller Davis Graham & Stubbs LLP

Most gas plant wastes are characterized as E&P wastes, subject to regulation & reclamation under COGCC regulations (900 series regulations)

EPA Region VIII has maintained that condensate, under certain circumstances, is not an E&P waste, but is a hazardous waste under RCRA

COGCC is unwilling to challenge EPA’s interpretation Issue avoided where disposal via UIC well is not involved?

What’s At Stake E&P waste is not regulated as a hazardous waste Costs to dispose of hazardous waste are substantially higher than costs to dispose of E&P waste Projects involving condensate are unduly complicated if condensate is not exempt

Liquid E&P waste (e.g., contaminated groundwater) can be disposed of in a Class II UIC well Liquid hazardous waste must be disposed of in a Class I UIC well at much greater cost

EPA Region VIII’s position on the RCRA status of condensate is in error

RCRA Hazardous Waste Regulation RCRA Subtitle C Regulates the Treatment, Storage, and Disposal of Hazardous Waste

Solid and Hazardous Waste Under RCRA “Solid Waste” is “any discarded material,” including material released from tank storage “Hazardous Waste” is a solid waste that is either: A Listed Waste A Characteristic Waste

Characteristic Wastes Ignitable; Corrosive; Reactive; or Toxic Condensate is ignitable

The E&P Exemption 1980 - Congress exempted from RCRA Subtitle C regulation “drilling fluids, produced water, and other wastes associated with the exploration, development, or production of crude oil or natural gas.”

EPA 1988 Regulatory Determination EPA listed approximately 30 wastes that are covered by the E&P Exemption

EPA’s 1993 Clarification EPA concluded that E&P wastes are those “intrinsic to and uniquely associated with oil and gas exploration, development or production operations . . . .”

1993 Clarification-Rule of Thumb “Whether the waste in question has come from down-hole (i.e., brought to the surface during oil and gas E&P operations) or has otherwise been generated by contact with the oil and gas production stream during the removal of produced water or other contaminants from the product. . . .”

1995 E&P Guidance/Brochure EPA issued “Crude Oil and Natural Gas Exploration and Production Wastes: Exemption from RCRA Subtitle C Regulation” (the “1995 Guidance”)

None of these publications exclude condensate, per se, from the E&P exemption

Prior EPA Determinations Gas Plants Are Part Of The E&P Process

1995 Guidance “[B]ecause natural gas often requires processing to remove water and other impurities prior to entering the sales line, gas plants are considered to be part of production operations regardless of their location with respect to the wellhead.”

OSWER Directive No. 9571.1993(01) (July 1993). Natural gas production operations encompass all processing facilities up to and including the gas plant, but not beyond.”

OSWER Directive No. 9571.1993(02) (Nov. 5, 1993). “[W]hile natural gas exploration and production (E&P) occurs at the wellhead, up through the gas plant, . . . E&P does not include transportation of gas once it has left the gas plant . . . .”

EPA Region VIII Determinations Region VIII has previously determined that the E&P exemption does not apply to natural gas condensate stored in tanks at a gas plant because the condensate is: A manufactured product being stored for sale In transportation

Condensate Is Not A “Manufactured Product”

1993 Clarification “[N]on-exempt manufacturing activities include operations that go beyond the removal of impurities from the raw gas and the physical separation of the gas into its component fraction.”

1993 Clarification “Manufacturing activities” are those that are “similar to petrochemical plant operations, such as the cracking and reforming of the molecular structures of the various gas fractions and the addition of odorants or other substances.”

The U.S. Tenth Circuit Court of Appeals has also recognized that natural gas condensate is, at most, a “by-product,” and is not “manufactured or formulated for commercial or manufacturing use.” United States v. Self, 2 F.3d 1071, 1081 (10th Cir. 1993).

Typical gas plant operations do not meet the definition of “manufacturing” because they do not go beyond the removal of impurities What is “storage for sale” and why should it affect the E&P status of condensate?

Condensate Stored At A Gas Plant Is Not In “Transportation”

1993 Clarification “For natural gas, ‘transportation’ is defined as beginning after dehydration and purification at a gas plant, but prior to transport to market.”

1993 Clarification “The end point of the scope of the exemption for natural gas is in the gas plant once manufacturing begins or, if no manufacturing occurs, at the point at which the natural gas leaves the gas plant for transportation to market.”

1995 Guidance “For natural gas, transportation begins at the point where the gas leaves the facility after production separation and dehydration at the gas plant.”

Crude Oil Analogy

By definition, under the 1993 Clarification, gas plant operations are “primary operations.”

1995 Guidance “Storage of crude oil in stock tanks at production facilities is considered part of the production separation process, not transportation, and is included in the exemption.”

Crude stored in stock tanks at production sites is as much a raw commodity “product” bound for sale as condensate Once spilled, crude is a “waste” Soil contaminated by crude from production stock tanks is expressly exempted as an E&P waste

Crude vs. Condensate Under Region VIII’s view: soil contaminated with crude released from stock tanks at the wellhead or consolidation facility is exempt, yet soil contaminated with condensate released from tanks at a gas plant is not exempt

Condensate released from a gas plant at a point prior to natural gas “manufacturing” or transportation out of the plant is a “solid waste,” and should fit within the E&P exemption

Tips For Resolving These Issues

Strategy Try to resolve the issue on a site-specific factual basis, e.g., condensate not released from “transportation” pipeline If possible, establish that the source of contamination is not from “manufacturing” or “transportation” phases of gas plant operations as defined by Region VIII

Tactics Carpe Documentum Obtain all documents in EPA and COGCC files that relate to the site and the issue FOIA/Open Records Act requests may be necessary Obtain all other written determinations on the issue generated by Region VIII, or at least those on which EPA is relying

Conclusion Resolve E&P issues regarding condensate on a factual basis if possible Obtain all available information relating to the sources of any contamination at the gas plant and relied upon by EPA and/or COGCC in making the E&P determination Don’t leave RCRA issues involving condensate until the end, or use methods that won’t require disposal via UIC well

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