Use Vigilance for Air Due Diligence
November 14, 2014

Buying and selling oil and gas properties is a mainstay of the oil and gas industry – and prudent buyers conduct “due diligence” for their acquisition(s). For the process, companies include a Phase I Environmental Site Assessment (ESA) to determine if any existing or potential recognized environmental conditions are present  - indicating contamination with oil or other chemicals. 

The Phase I ESA includes a site visit and review of reasonably ascertainable information. NORM surveys, sampling of soil, air, groundwater and/or building materials are typically not conducted during a Phase I ESA; a Phase II ESA would cover that part  of the due diligence.  The EPA accepted standard for Phase I ESAs is ASTM E1527-13: Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.

The Phase I ESA is used to comply with the EPA’s All Appropriate Inquiry Rule and obtain protection from potential liability under the CERCLA law as an innocent landowner, a contiguous property owner, or a bona fide prospective purchaser.

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Not included in a typical Phase I ESA is compliance with air quality regulations for the facilities. As noted in previous blog topics here at HY-BON, there is an alphabet soup of regulations with which Oil and Gas must comply.  Judicious new owners include in their Phase I ESA scope a compliance review of air quality permits and regulations for the new properties. 

Why is this important?

Companies want to ensure that from Day One of taking over the facilities, they have the proper air permits, emission controls, and compliance records and can move forward with their development plans.  This can minimize environmental liabilities associated with not having an air permit that is required to operate or historical noncompliance with air quality permits and regulations. 

One question many environmental specialists get asked is:  “Will they shut me in?”  With proper review prior to taking over operations and compliance with the air regulations, this question will be a moot point. 

Use vigilance for air “due diligence” and get these issues addressed during an air quality review: 

  1. Does the facility have an air permit?
    1. Is the air permit current?
    2. What is the air permit’s expiration date?
    3. What is the type of air permit (Title V, minor source)?
  2. Is the list of air emission sources operating at the facility the same as the list in the current air permit?
  3. Are current production rates of crude oil, condensate and natural gas below the rates in the current air permit?
  4. Are all emission controls installed and operating properly? Are they size correctly?
  5. Any leaking storage tanks or components (valve, flanges, seals, pumps)? Use auditory, visual and olfactory methods. 
  6. Any visible emissions from engines, heaters, flares and storage tanks?
  7. What major NSPS (e.g., OOOO, KKK,  IIII, JJJJ) and NESHAPS (e.g., HH, ZZZZ) rules apply to the emission sources?
  8. Has the facility conducted all monitoring, testing, record keeping and reporting required by the air permit?   
  9. Are there any past or pending air quality noncompliance or enforcement actions?
    1. Determine details – cause, duration, corrective action and steps to prevent recurrence.
  10. Is the facility required to submit an annual air emission inventory for criteria or hazardous air pollutants (HAPs)? 
  11. Is the facility required to report GHG emissions on an annual basis?

As much is possible, get a list of outstanding issues and correct compliance issues prior to the closing of the sale. 

Actions for After the Sale

Often there is not enough time to address or correct all outstanding issues prior to the close of the sale. Some actions to consider after taking over operations include the ones listed below. Of course, there are other air issues depending on the facility and the states the oil and gas facility operates in.  A more extensive check list would be required for a specific project. 

Obtain all air compliance records from previous operator.

  1. Obtain copies of the air permit and air permit application used to generate the current air permit.  NOTE: The air permit is typically not detailed enough regarding the emission sources and permit requirements; the application is a representation used to generate the air permit and will have more details needed for compliance. 
  2. Prepare a briefing sheet for the air permit to ensure all requirements are understood and complied with. 
  3. Meet with regulatory agency to discuss any outstanding air permitting and enforcement action within the first 30 days of taking over operations. Get a plan of action for correcting compliance issues.
  4. Verify emission controls are sized and operating correctly.  This can include (but is not a complete list):

Storage tanks

  • Measure storage tank vent gas to determine if vapor recovery units (VRU), vapor combustion units (VCU) and flares are sized properly. 
  • Is the piping for the VRU, VCU and flare designed properly (sloping line) to ensure all the vent gas is collected by the control device? 
  • Are VCUs and flares consistently operating with no visible emissions (smoke)?
  • Check for leaking tank thief hatches and bad seals. 
    Does NSPS OOOO apply to any of the storage tanks? 

Glycol Dehydration Units Still Column Vents

  • Are emission controls such as condensers operating properly (not emitting steam)?
  • If used, is the condenser exit temperature below any permit required value?
  • If the condenser noncondensable gases are routed to the reboiler, is there smoke emitted by the reboiler combustion exhaust stack?
  • Is the circulation rate of glycol below the permitted limit? 

Internal Combustion Engines

  • Review stack test results for past year. 
  • Are all internal combustion engine catalytic converters installed and operating?

Facilities in compliance with their air permit on the day they take over operations will stay in good graces with the regulatory agency.  Proper due diligence and ongoing action will ensure compliance.