Regulators consider rule for remote oil storage

Abundant supplies of crude oil have regulators pondering how and where it should be stored at off-lease locations.

O n T h u r s d a y , e l e c t e d me mb e r s o f O k l a h o ma ' s Co r p o r a t i o n Co mmis s i o n wi l l c o n s i d e r a p r o p o s e d emergency rule to establish those requirements.

The p r o p o s e d r u l e d o e s not l oosen r e s t r i c t i ons on what types of tanks can hold the product. Above ground tanks designed to hold crude oil remain a requirement, as do dikes and retaining walls needed to prevent pollution if a tank fails.

I t a l s o b a r s t e mp o r a r y s t o r a g e l o c a t i o n w i t h i n t h e b o u n d a r i e s o f c e r t a i n floodplains or anywhere else that already is prohibited by law.

The emergency r ul e al s o l i sts other routine requiremen t s . A p e r mi t t o b u i l d and operate such facilities is 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 a l s o would b e r e q u i r e d t o surround t he l ocation with a fence to keep livestock and people away and to post a sign at its entrance identifying the si t e' s l egal description, i t s operator, a 24- hour emergency telephone number and a language that warns unauthorized people to stay off the location.

Off-lease storage locations also would have to be accessible by passable roads, be free of trash or any other potential fire hazards, and operators woul d b e r e q u i r e d t o take appropriate steps to stop or control any leaks, report the occurrence to the agency's Oil and Gas Conservation Division and to follow its directives to address resulting contamination issues.

Ot h e r p r o c e d u r e s would have to be followed by operators to return the sites to nonstorage uses after they are no longer being used.

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.

Evolving conditions

S t e v e n A g e e , a n economics professor who is the dean of the Mei n d e r s S c h o o l o f Business at Oklahoma City University, said t h e p r o p o s e d r u l e d e m o n s t r a t e s t h a t Oklahoma's oil producers are continuing to

face a “dismal” business environment, given that crude oil prices globally have fallen dramatically since early March.

Ope r a t o r s c o u l d b e looking to empty full tanks so they can continue to run their wells, he agreed.

H o w e v e r , h e a l s o wondered whether well operators could be setting themselves up for potential lawsuits from mineral rights owners if they choose to move oil to off-lease storage locations.

Agee said some leases r e q u i r e p a y me n t s t o r o y a l t y o wne r s whe n that occurs, assuming an

initial sale has been made.

“The big question i s whether or not they will be allowed to store it at an off-lease location without calling it a sale,” Agee said.

He said that i ssue, i f it arises, would have to be settled in district courts between operators and mineral rights owners.

Regul a t or s s a i d t hi s week the proposed rule was prompted by questions from both oil and gas companies l ooking f or alternative storage locations, and from other p e o p l e who n o r mal l y h a v e n o i n v o l v e men t with t he business and

are looking at an opportunity to speculate within the market, grabbing up crude oil while it is cheap so that they could resell it for more, later.

Davi d Li t t l e , p r e s i - dent of Kingery Energy in Ardmore and also the president of the Oklahoma E n e r g y P r o d u c e r s Alliance, said he believes regulators just want to e nsure t he pr oduct i s safely stored, regardless of where that is.

“We believe the commission wants to be sure that everyone is following the required rules,” Little said.