OFF-LEASE RULE NOT READY
Operators ask Corporation Commission to tread carefully
A proposed rule that would regulate how and where crude oil is stored at off-lease locations needs more work, the Oklahoma Corporation Commission was told on Thursday
Oklahoma's oil and gas operators asked the Oklahoma Corporation Commission on Thursday to spend additional time developing an emergency rule that would regulate how and where crude is stored at off-lease locations.
The agency's elected members discussed whether a technical hearing on the proposed rule is needed so that upstream and some midstream operators, mineral rights owners and other interested parties can have a fuller opportunity to review the proposal and advise commission officials on changes they believe are needed to prevent unintended consequences.
“We don't want fly- bynighters setting up storage sites across Oklahoma willynilly” to take advantage of a unique situation, said Terry Stowers, representing the Coalition of Oklahoma Surface and Mineral Owners. “We want to be sure the rule does what we intend it to and doesn't create a bunch of unintended consequences down the road.”
Bud Ground, director of regulatory affairs at the Petroleum Alliance of Oklahoma, offered similar thoughts.
“We want to do the right thing, to make sure we don't do anything that is going to look bad on the industry,” he said.
Oil and gas company representatives weren't the only ones with questions.
Commissioner Dana Murphy opened discussion on the topic by asking the agency's Oil and Gas Conservation Division what prompted its decision to propose the rule.
Brad Ice, the division's field operations manager, told commissioners that he and the director of the agency's Pollution Abatement Department have been getting contacted regularly in recent weeks by people who are interested in setting up temporary
crude storage to take advantage of remarkably low-priced crude (thanks to a COVID- 19 related demand drop and other global factors).
“Almost all of them are purchasing that product from Cushing,” Ice said. “We have had anything from (people) wanting to store oil in those intermediate bulk containers, which range from 275 gallons to 330 gallons, to what I call Goliath tanks that will hold up 60,000 barrels per container.
“Some of these people are individual landowners. Some are service company operators exploring how to keep their companies afloat. But a majority of them are brokers or people just looking to get this oil cheap, set up large containment and then sell it when prices improve.”
Ice said the division
intends for the rule to apply to temporary storage locations that might be created, not to already permitted locations approved by the commission or other state and federal agencies.
He said the agency's concern is that it needs to track what is coming, noting that otherwise, “they could more or less put these wherever they wanted with no regulations.
“We have to know where they are, who they are, where the oil is coming from and how they are going to store it so we can protect the public,” he said.
The proposed rule does not loosen restrictions on what types of tanks can hold crude oil, as aboveground tanks designed for that purpose would be required, as would surrounding dikes and retaining walls to prevent pollution if a tank fails.
It also would bar temporary storage locations within the boundaries
of certain floodplains or anywhere else that already is prohibited by law.
A permit to build and operate such facilities would be needed, as would a $100,000 surety in the form of a bond, cashier's check, certificate of deposit or irrevocable letter of credit. Remote storage operators also would be required to surround the location with a fence to keep livestock and people away and to post a sign at its entrance identifying the site's legal description, its operator, a 24-hour emergency telephone number and a warning for unauthorized people to stay off the location.
Plus, operators would be required to take appropriate steps to report, stop or otherwise control any leaks under state supervision.
Violators caught without a permit to store the oil at an off-lease location would be hit with fines of up to $5,000 per day, the proposed rule states.
Commissioners, who
discussed whether a technical conference is needed, likely will revisit the issue soon.
“We are facing an extraordinary situation where people are engaging in activities that aren't a normal part of the business,” Anthony said. “We are trying to bring some order and safety to what is happening.
“Those types of activities could create a bad name for all of us.”
Murphy said the agency must be sure that whatever is implemented both protects the environment and the correlative rights of everyone involved in the production of oil and gas, including royalty owners.
One operator countered, however, that waste is a concern as well.
“Hopefully, as the economy recovers, the price of oil will as well,” said Steven Altman, president of Brown & Borelli Inc. “There needs to be a balance between correlative rights and waste.”