Oil and Gas Sector E&P Reporting Protocol For Western Regional Air Partnership Task 1 Presentation – Santa Fe Meeting February 12, 2009 Presented by: Science Applications International Corporation and Environ International Corporation

2 Technical & Organizational Comments  Technical and organizational comments came from 12 stakeholders (around 450 comments)  Technical and organizational comments received include the following examples: Clarification or rewording of discussions of oil and gas processes, equipment, emissions, statistical production data, and other factors Corrections to specific quantitative information or conceptual descriptive text Comments requesting inclusion of source categories not specifically mentioned Organizational comments requesting re-ordering of sections or tables

3 Technical & Organizational Comments  Example of technical clarification comment: The process of removing CO 2 is not discussed in the second half of this paragraph. It can be said that the process for removing CO 2 is similar. The amine process is used but then CO 2 is typically vented directly to the atmosphere or, if in marketable quantities, is sold for other processes such as EOR. - Craig Bock, El Paso Page 7 third full paragraph: Condensate tank emissions are a very large source of methane emissions and are substantially underreported in the U.S. greenhouse gas inventory by more than an order of magnitude, yet using available technologies, methane emissions can be captured off of tanks. Recovering methane emissions also offers an ancillary benefit of reducing emissions of heavier hydrocarbons which are criteria pollutants. - Roger Fernandez, US EPA

4 Technical & Organizational Comments  Example of comment requesting corrections to specific information: Please revise recovery factor estimates to ensure consistency throughout the document. Primary recovery factor estimates of 25% are shown on p.4, but are stated as 10% on p.5. Secondary recovery estimates for water and gas injection are listed at 20-40% at the top of p.5, but water injection is later cited at an 80% recovery on p.5 - Tom Singer and Jeremy Nichols, NRDC and Wild Earth Guardians

5 Technical & Organizational Comments  Example of organizational comment: Suggest organizing potential emission sources in the table under the subcategories of combustion, vented, and fugitive emission sources so that they are more easily understood by the reader. - Chris Loughran, URS Corporation

6 Technical & Organizational Comments  Example of request to include additional source categories: Table 1 for oil and gas drilling activities should be expanded to include the following sources: dehydrators (may be used for green completions), flares/incinerators (for completion flaring), and boats/barges (for offshore operations). -Karen Ritter, API Table 10 is incomplete in regard to the CAPP document. Glycol pumps, CO 2 venting, storage tank flashing, storage tank other, and chemical injection pumps are all considered in the inventory -Coleen West, CAPP

7 Technical & Organizational Comments  We value all of the technical and organizational comments received  The technical team will attempt to address all of these comments in preparing a revised draft of the Task 1 Background and Scoping Paper  Comments are helpful and add value to the final Task 1 product  The complete list of technical and organizational comments received will be provided to the TWG

8 Chapter III: Regional Variations  Specific issues in Chapter III for which we solicited comments: How are regional variations to be accounted for in selecting high- tier source categories? What basic geographic unit might be considered in accounting for regional variations? County Basin Field State

9 Comments on Regional Variations  Source categories that are high-tier in some regions may be minor source categories in other regions  Therefore some regional variation must be considered in determining what are high-tier source categories vs. minor source categories  Regional variations considerations are not intended to eliminate whole regions from consideration, but rather to determine what are the most important GHG emissions source categories in those regions i.e. the focus is on regional variations in importance of source categories, not importance of regions

10 Comments on Regional Variations  Regional variations considerations are not intended to eliminate whole regions from consideration, but rather to determine what are the most important GHG emissions source categories in those regions i.e. the focus is on regional variations in importance of source categories, not importance of regions

11 Chapter IV: Estimation Methodologies  Specific issues in Chapter IV for which we solicited comments: Are the ranking criteria selected appropriate and are there additional criteria to use in evaluating methodologies? Are there sources of methodologies not considered in this analysis?  New version now available - assesses methodologies for oil sands equipment and offshore MMS study

12 Methodology Ranking Comments  Intent of methodology ranking was to provide as comprehensive a list as possible of various methodologies that cover estimation of GHG emissions from oil and gas E&P specific source categories, and to rank them in order to assist in selection of a methodology(-ies) to use for high-tier source categories in Task 2  Five ranking criteria were developed to assist in this methodology ranking: Accuracy of method Degree of completeness of data Degree of availability of data Method addresses regional variability Method addresses temporal variability Uncertainties in analysis

13 Methodology Ranking Comments  Examples of comments received regarding ranking of methodologies: Why is WRAP Methodology for Glycol Dehydrators, p76 - 2nd entry, rated a 1? It would appear to be inferior to the method mentioned above where specific performance information is available. Jim Meyer. Environmental Defense Tables misrepresent the methods reviewed by assigning a Rank of “1” to equipment specific estimation methods that rely on average (generic) emission factors. … and we recommend that the tables be revised to correctly reflect method quality for each of the GHGs being considered Karin Ritter. API

14 Methodology Ranking Comments  Comments were received that indicated that the ranking is somewhat subjective We agree with these comments but it is difficult to provide a quantitative basis for these rankings  Rankings should be viewed relative to each other as opposed to relative to an absolute standard Methodologies with relatively high rankings will all be considered for selection as part of the Task 2 effort to identify methodologies for high-tier source categories

15 Methodology Ranking Comments  A number of comments were received requesting revisions to specific rankings Further refinement is needed of the rankings to account for valid comments and observations made by reviewers All comments of this type will be reviewed one by one and in general revisions will be made to the rankings as appropriate or there may be a need for follow-up with a commenter  Additional criterion that was requested to be considered is the “robustness” of the methodology This will be reviewed and considered as another possible criteria  It should also be noted that the Task 2 work will try to identify how complete are the data needed for particular estimation methodologies and make recommendations to gap-fill these data and/or recommend alternative methodologies

16 Chapter V: Boundary Issues  Specific issues on which we solicited comments: Are there other E&P sector situations that we missed that may cause confusion when the GRP boundary rules are applied to them? Are there other (non-boundary) GRP rules and options (e.g., those discussed in Chapter VI) that need further explanation in E&P protocols? Is the downstream boundary (point of custody transfer) appropriate? - The comments received agreed with the downstream boundary proposed

17 Boundary Issues Comments  Three additional aggregation options to define a facility were proposed by the SAIC-ENVIRON team: Aggregation by lease Aggregation according to EPA’s Stationary Source Definition Aggregation by oil or gas field  The following aggregation option was proposed by a stakeholder: Aggregation by tax or royalty boundary

18 Boundary Issues Comments  A number of comments were received regarding facility definition, aggregation options recommended and mobile source emissions reporting  Example of facility definition comment: The definition of a facility could follow guidance provided by ISO Part 1. Nonetheless, it ought to be recognized that the same definition should probably not apply for determining installations thresholds for inclusion in Cap-and-Trade - Karin Ritter, API  Example of mobile source emissions comment: Emissions from mobile sources may be difficult to track per facility. These mobile sources are routinely used at multiple facilities and the uncertainty regarding the accuracy of allocations per facility will limit the value of reporting these emissions. The scoping paper states that the difficulty in assigning these emissions would be largely eliminated if facilities were defined at the state level, a solution that may not be practical for all companies. We recommend that the reporting of mobile sources be further defined once a final definition of facility is adopted. - Mark Nordheim, Chevron

19 Boundary Issues Comments  Example of recommended aggregation options comment: Options offered may be insufficient to address the unique characteristics of the E&P sector and only represent a subset of the potential approaches to defining a facility for use in a voluntary program. The problem becomes even more acute in a mandatory reporting setting where consistency and accuracy are critical. - Mark Nordheim, Chevron  Stakeholders expressed concerns about double counting issues when reporting emissions under TCR boundary rules Reporting under optional "organizational boundary" rules (as discussed on pgs 88-93) could result in double reporting of emissions, by two separate entities, perhaps without each other’s awareness (see Table 22 example). It appears that the most workable approach to reporting would be on an "operational control" basis. - Arun N. Naik, Shell

20 Chapter VI: TCR Rules/Options Posing Challenges for E&P  Specific issues on which we solicited comments: Do you agree or disagree with our recommendation to make reporting of contractor emissions mandatory (please include reasoning)? Do you agree or disagree with our recommendation to continue to allow aggregation of wells to state or province, but to also provide additional intermediate options? Are there other aggregation options you would recommend?

21 Scope 3 Contractor Emissions Comments  Conflicting comments were submitted regarding the recommendation to make reporting of contractor emissions mandatory  Reporters main concerns are: Difficulty in accessing the data needed from contractors Significant administrative burden for the operator Lack of accuracy of the reported data will have limited value. There is confusion about how the 5% materiality threshold will apply

22 Scope 3 Contractor Emissions Comments  Examples of comments disagreeing with the recommendation: We strongly disagree with the recommendation to require mandatory reporting of all scope 3 (contractor) emissions. This is of questionable value without accompanying evaluation of materiality of source contributions, even if more flexible emission estimation methodologies (compared to GRP) are allowed. Access to contractor data for emissions quantification is most likely to be problematic. Potential problems will also lead to failure in GVP (verification) process. A better approach would be to stay with the TCR GRP approach of reporting direct emissions (scope 1) and purchased heat and electricity (scope 2) only and to require the contractors to report their own direct (scope 1) and scope 2 GHG emissions when servicing a TCR reporter or at a facility subject to mandatory GHG reporting. - Arun N. Naik, Shell EP strongly diagree with modifying the GRP to require oil and gas companies to include Scope 3 emissions, even if from a specific list of contractor sources. A more complete and accurate picture of GHG emissions can be achieved by developing protocols for estimating emissions from drilling, completion, workover, and construction equipment with the cooperation of representative from those industries. Then the GRP can be modified to require those industries to report Scope 1 and Scope 2 emissions from their own equipment and activities - Craig A. Bock, El Paso

23 Scope 3 Contractor Emissions Comments  Examples of comments favoring the recommendation: We agree GHG emissions from contract operations are significant and must be included in the GHG protocol. O&G companies extensively out-source work to subcontractors, including major emission sources such as drilling rigs, workovers, construction, logistical operations, and other specialty services. We fully support including contractor emissions in the GHG emission estimates, and fully support your recommendation to make that clear in both the WRAP and The Climate Registry (TCR) reporting requirements for E&P activities. Additionally, we recommend that all contractor emissions be reported. There are other categories of E&P emission sources that are often subcontracted out that warrant consideration. Some of these categories include: Wellwork (maintenance, repair, wireline and electric line logging, stimulation treatments, etc.); Seismic Operations; Offshore supply/fuel support vessels and tugs; Construction equipment and other mobile sources; Geophysical and geological (G&G) site clearance and borehole drilling; and Spill response equipment (pumps, engines, vehicles, vessels, athey wagons, etc.) - Tom Singer, NRDC We agree with the recommendation that E&P reporters be required to report outsourced Scope 3 emissions based on the justifications provided in the report - Province of Bristish Columbia

24 Working Group Comments  Comments are very helpful and add value to Task 2 and Task 3 Thank you

25 Contacts Steven Messner Project Manager San Diego, CA Tel: (858) Chris Minnucci Principal Investigator - Protocols Philadelphia, PA Tel: (610) Dr. Amnon Bar-Ilan Principal Investigator – Oil & Gas Emissions Tel:

26 Recommended Aggregation Options  Aggregation by lease. The advantage of this approach is clarity and precision. However, because individual oil and gas leases tend to be small (typically 640 acres or less in the western U.S.), the problems associated with reporting by individual well may in many circumstances also apply to reporting at the lease level.  Aggregation according to the EPA’s Stationary Source Definitions. EPA requires E&P companies to aggregate their currently reported (non-GHG) emissions data across individual leases, as long as the leases are contiguous.  Aggregation by oil or gas field. Aggregation by field would reduce the number of facilities to a much more manageable level than reporting by well or individual lease. However, along with these advantages would come some loss of clarity and consistency. Each of the states have developed their own lists of fields, and while the definitions of individual fields on these lists are generally clear, the criteria used to define separate fields differ across jurisdictions and are somewhat arbitrary.

27 Example of Aggregation  A “real world” example of how some E&P companies aggregate their data was submitted EP conducts its inventories of E&P operations using aggregation by field. Field lists are generated within EP based on the accounting structure of a production area. These fields are called "reporting fields" and may be a combination of production fields. Aggregation of production and expenses associated with operation and equipment occurs at the "reporting field" level, so GHG emission inventories, which are often dependent upon production (oil, gas & water) and equipment, are aggregated at the same level. That is, emissions from individual pieces of equipment and activities within the reporting field are calculated and aggregated into a single number for each gas. - Craig A. Bock, El Paso

28 ISO Facility Definition  Single installation, set of installations, or production processes, stationary or mobile, which can be defined within a single geographical boundary, organizational unit or production process

29 WCI Facility Definition  “Facility” means any property, plant, building, structure, stationary source, stationary equipment or grouping of stationary equipment or stationary sources located on one or more contiguous or adjacent properties, in actual physical contacted or separated solely by a public roadway or other public right-of-way, under common operational control, and having the same first two digits of the Standard Industrial Classification (SIC) or the same first three digits of the North American Industry Classification (NAICS) code. [Some special facilities, such as oil and gas production fields will have separate definitions] WCI “Facility” Definition (from Essential Reporting Requirement of Mandatory Reporting for the WCI - 1/6/2009 Draft)