The Nickel Report

On January 15, 2021, the Texas Commission on Environmental Quality (“TCEQ”) received approval to implement the National Pollutant Discharge Elimination System (“NPDES”) program for oil and gas discharges. [1]  Generally, as a result of this approval, applicants for NPDES permits for produced water, hydrostatic test water, and gas plant effluent will only require a single TCEQ authorization rather than authorizations from both the Railroad Commission of Texas (“RRC”) and the U.S. Environmental Protection Agency (EPA) as previously had been required. [2]

On November 27, 2020, the US Environmental Protection Agency (“EPA”) published notice that the Texas Commission on Environmental Quality (“TCEQ”) has applied to the US EPA for National Pollutant Discharge Elimination System (“NPDES”) program authorization for discharges of produced water, hydrostatic test water and gas plant effluent. [1] TCEQ’s application (“Application”) was filed in response to a bill passed during the last Texas legislative session that required TCEQ to submit to EPA no later than September 1, 2021, a request for NPDES permitting authority for discharges of produced water, hydrostatic test water and gas plant effluent associated with oil and gas activities currently under the jurisdiction of the Railroad Commission of Texas (RRC). [2] Under this legislation, state authority to regulate these discharges will transfer from the RRC to TCEQ upon EPA’s grant of NPDES permitting authority to TCEQ. Should EPA grant NPDES permitting authority to TCEQ for these discharges, a prospective permittee would generally only need to obtain a single TCEQ authorization (rather than an authorization from both the RRC and EPA). [3]

Last week, the U.S. Environmental Protection Agency (“EPA”) issued its final report addressing the input received by various stakeholders relating to the management of wastewater from the oil and gas industry.  The report entitled Summary of Input on Oil and Gas Extraction Wastewater Management Practices Under the Clean Water Act is the culmination of a stakeholder engagement process that began in 2018 (“Final Report”) [1].

On January 22, 2020, the Texas Senate Committees on Natural Resources and Economic Development and Water and Rural Affairs (Senate Committees) held a joint hearing to consider Lt. Governor Dan Patrick’s 2019 interim legislative charge related to one of the most pressing matters facing the state—future water supply issues. This interim charge requires that these legislative committees make recommendations to promote the state’s water supply, including the development of new sources. The recommendations made will be the subject of consideration when the Texas Legislature reconvenes in 2021 and will inform future legislative initiatives. While a broad range of water supply topics was discussed during the hearing, notably, the subject of produced water, including opportunities for reuse within and outside the oil field, continues to be a focal point under review by state policymakers.

The Texas Commission on Environmental Quality (TCEQ) is moving forward with steps necessary to seek delegation of the federal National Pollutant Discharge Elimination System (NPDES) permitting program for produced water discharges. In doing so, Texas will be joining similar efforts underway or under consideration in the neighboring states of Oklahoma and New Mexico. Should EPA delegate such NPDES authority and separately take action to address the restrictive federal regulatory framework now in effect for onshore produced water discharges, this would result in streamlined and expanded beneficial reuse options for produced water in the key oil and gas producing states in the country.

On May 15, 2019, EPA released its draft Study of Oil and Gas Extraction Wastewater Management under the Clean Water Act (Draft Study). The Draft Study addresses the results of an extensive review initiated last year to evaluate the management of oil and gas wastewaters generated at onshore facilities and to assess the need for additional discharge options for onshore oil and gas wastewater under the Clean Water Act (CWA).^[1] Although EPA has not yet adopted any recommendations for regulatory action, it is evident that EPA is continuing to take a hard look at the merits of authorizing broader discharges of produced water to surface waters than those currently allowed for onshore discharges under the CWA effluent guidelines (and generally referred to as the zero discharge standard).^[2] See 40 CFR Part 435, Subpart C. EPA is now requesting additional public comment on the Draft Study by July 1 of this year with the goal of finalizing it and determining next steps this summer.

The US Environmental Protection Agency (EPA) has recently determined that no revisions to existing RCRA Subtitle D regulations for the management of oil and gas wastes are necessary. This conclusion follows EPA’s completion of an extensive review to fulfill the requirements of a Consent Decree entered by the US District Court for the District of Columbia that settled litigation filed by certain environmental organizations over EPA’s alleged failure to update its rules for management of oil and gas wastes. EPA’s findings, released on April 23, 2019, are set forth in a report titled, Management of Oil and Gas Exploration, Development and Production Wastes: Factors Informing a Decision on the Need for Regulatory Action (Report). This means that, at least for now, EPA’s longstanding position on regulation of oil and gas wastes remains unchanged.

An interesting confluence of issues may facilitate the creation of an improved regulatory framework for the beneficial use of produced water from oil and gas operations. Water supply and produced water management have the attention of many oil and gas companies for a variety of reasons. Concern over water supply and severe drought has lead a number of states and municipalities to look for sources of water outside the traditional sources of groundwater and surface water. At the same time, environmental groups are concerned over drought impacts to surface water and wildlife. Given the abundance of produced water in some formations, it may be possible to reuse produced water within oil and gas operations and beneficially use produced water outside of oil and gas operations. What are the issues surrounding produced water and how are they impacting the development of regulatory programs governing the use of produced water?

2018 was a banner year for M&A activity in the energy space, with numerous high dollar value transactions in the upstream, midstream, downstream and oil field services (OFS) segments. As investors in the public securities markets have shown a significantly decreased appetite for new issuances of equity by energy companies, the preferred exit or growth strategy for 2018 has been through strategic mergers, acquisitions or divestitures. These transactions have manifested themselves in various forms: asset acquisitions and divestitures, private equity investment into “drillcos” with strategic oil and gas companies, public-public mergers between OFS companies and upstream shale drillers, and simplification transactions by master limited partnerships (MLPs) in the midstream space. In addition to all this M&A activity, one element has become significantly more prevalent in the oil and gas industry throughout 2018 and shows no signs of letting down for 2019: water.