Recently, when there was talk about Houston-based ATP Oil and Gas’ (ATP) legal problems, it was inevitably about its bankruptcy and its effort to bring the overriding royalty interests it had conveyed back into the bankrupt estate as debt instruments. That should change now that the Department of Justice (DOJ), acting jointly on behalf of EPA and BSEE, has announced its settlement with ATP Infrastructure Partners (ATP-IP) in the first joint judicial enforcement action resolving alleged violations of both the Clean Water Act (CWA) and Outer Continental Shelf Lands Act (OCSLA).
This settlement should garner its own share of interest, if for no other reason, because BSEE and EPA are taking the issues serious enough to require all submittals to be signed by a responsible corporate official in addition to imposing a $1 million fine.
It highlights three trends that industry should be aware of: the willingness of EPA and BSEE to work together to address violations of environmental regulations off-shore, requiring corrective measures that include enhanced reporting and third-party auditing, and multiple mandated certifications by a designated officials.
In March 2012, BSEE conducted an inspection of ATP’s floating production platform facility, known as the ATP Innovator, while it was moored to the sea floor about 45 nautical miles offshore of southeastern Louisiana (about 125 miles south of New Orleans) and engaged in the production of oil and natural gas. ATP operated a float cell on the platform as an essential part of its wastewater treatment system to separate and remove oil and suspended solids from its produced water prior to its discharge into the Gulf. During the inspection, BSEE officials discovered a metal tube “hidden in the rafters” that went from a tank holding Cleartron ZB-103, a water clarifier that the government alleges was used as a dispersant, to the outfall pipe at a location downstream of the designated NPDES sampling point; thus, making the added chemical undetectable in required NPDES samples.
According to the complaint (PDF) DOJ filed in February 2013, Cleartron ZB-103 was routinely “injected into the outfall pipe to mask oil sheen on the ocean surface resulting from ATP’s discharge of wastewater containing quantities of oil in excess of its NPDES permit limit.” DOJ further alleged that this setup was intended to allow ATP to mask any oil sheens resulting from the discharge of wastewater that exceeded the permit limit for oil content. Under the NPDES General Permit, the Oil & Grease content of produced water discharges is limited to a monthly average of 29 mg/L and a daily maximum of 42 mg/L, and the General Permit only requires the collection of Oil & Grease samples once per month.
However, permittees are also required to sample their produced water discharge for Oil & Grease any time that a sheen is observed in the vicinity of the discharge. Thus, the mere presence of a produced water sheen is not necessarily a permit violation, but it will necessitate additional sampling to determine if a violation has occurred. The government also noted that the Cleartron ZB-103’s MSDS states that it is harmful to aquatic life. For these reasons, the government claims that the discharge of Cleartron ZB-103 in this manner was an unlawful discharge of a CWA “pollutant.”
Following the BSEE inspection, the piping that ran from the Cleartron ZB-103 tank to the discharge pipe was removed, the ATP Innovator ceased operations and was removed from the deepwater. It now resides at the Port of Corpus Christi, Texas, sitting idle with no plans for future use in United States waters.
The DOJ filed its complaint against two entities—ATP and ATP-IP. ATP is the ATP Innovator’s operator and ATP-IP is the platform’s owner. Sometime after the BSEE inspection, but before DOJ filed its complaint, ATP declared bankruptcy citing reduced cash flows caused by the deepwater drilling moratorium instituted after the 2010 Deepwater Horizon oil spill. Normally, the automatic stay afforded to bankrupt entities would protect these entities against litigation, but the DOJ’s enforcement action was exempt from the automatic stay based on a “police and regulatory” exemption. ATP’s bankruptcy has not been resolved; therefore, the government’s claims against it await resolution.
The government’s Complaint alleges six causes of action:
- CWA § 309(d) civil penalties for violations of CWA § 301(a) for unauthorized chemical dispersant discharges;
- CWA § 309(d) civil penalties for permit violations;
- CWA § 311(b)(7)(A) and (D) civil penalties for oil discharge violations;
- Injunctive relief under OCSLA, 43 U.S.C. § 1350(a);
- Injunctive relief under CWA Section 309(b); and
- Declaratory judgment declaring the applicability of the police and regulatory exception to the Bankruptcy Code’s automatic stay pursuant to 11 U.S.C. § 362(b)(4).
ATP-IP unsuccessfully sought to have all of DOJ claims against it (Claims 3, 4, and 5) dismissed. See United States v. ATP Oil & Gas Corp., 955 F.Supp.2d 616 (E.D. LA. 2013).
The Relief Sought by the Government
Both EPA regulations and the General NPDES permit restrict the discharge of dispersants into the ocean or any other waters. See 40 C.F.R. § 110.4 & NPDES General Permit, Part I, Section C.3 (expressly stating that the “operator shall minimize the discharge of dispersants, surfactants and detergents except as necessary to comply with the safety requirements of [OSHA, BSEE, and BOEM]... .). The DOJ alleged that ATP had been discharging significant quantities of dispersants, i.e., Cleartron ZB-103, on a daily basis, from October 2010 to March 2012—a period of about 16 months which at a statutory maximum of $37,500 per day for each of the three violations listed above exposed ATP to a maximum potential fine of about $54 million.
In addition to statutory penalties, the DOJ sought injunctive relief measures under both the CWA and OCSLA for operational practices to prevent future unauthorized discharges of pollutants into the offshore waters. This included the pipe setup itself, which still exist, in part, because only the pipe itself was removed, leaving the tube for use in future permit violations.
ATP-IP’s Consent Decree
To resolve this enforcement action, ATP-IP agreed to pay a $1 million fine and perform corrective measures including the permanent elimination of the Cleartron ZB-103 access point in the wastewater discharge outfall pipe. More importantly, the Consent Decree (PDF) requires that at least 30 days before anyone uses the ATP Innovator again for exploration, development, or production activities in US waters, ATP-IP will certify to the government that:
- The platform has sufficient wastewater treatment equipment and operational plans to meet and maintain CWA permit discharge limits and prevent unlawful discharge of pollutants.
- The platform’s surface production-safety systems will be maintained in a manner that provides for protection of the environment in accordance with BSEE’s regulations.
- All platform operations will be performed in a safe and workmanlike manner in accordance with BSEE’s regulations.
As a further safeguard, with respect to the platform, ATP-IP must notify the DOJ, EPA and BSEE if any of the following actions occur:
- The addition of any wastewater treatment equipment or surface production-safety equipment before the requisite certification is made.
- Removal of the tube and permanent sealing of the discharge pipe.
- Plans for its sell or transfer of ownership.
- Plans for its salvage or scraps.
- Plans for its use or lease for exploration, development, or production activities.
- The required third-party audit of its wastewater treatment operations and surface production-safety systems for compliance with the CWA and OCSLA.
- After every six months, its location and ownership.
Each Notification, Certification and Report Must be Signed By a Responsible Corporate Official
In a showing of how serious BSEE and EPA are taking these alleged violations, the consent decree requires each of the above notices, certifications and audit reports submitted by ATP-IP to the government to be signed by a responsible corporate official with the following certification:
I certify under penalty of law that this document and all attachments were prepared under my direction or supervision in accordance with a system designed to assure that qualified personnel properly gather and evaluate the information submitted. Based on any personal knowledge I may have and my inquiry of the person or persons who manage the system, or those persons directly responsible for gathering the information, the information submitted is, to the best of my knowledge and belief, true, accurate, and complete. I am aware that there are significant penalties for submitting false information, including the possibility of fine and imprisonment for knowing violations.
The consent decree neither defines the term “responsible corporate official.” It is unclear whether this term will be interpreted as consistent with the similar provisions of the NPDES signatory rule. See 40 C.F.R. 122.22. The above certification language is almost identical to that which is required by NPDES regulations that must be signed by a responsible corporate officer or their duly authorized representative. See 40 C.F.R. § 122.22 (d). If the term “official” as used in the consent decree is equivalent to “officer,” then the only real difference is that the consent decree does not allow a “duly authorized representative” to sign the above-required certifications.
This consent decree is significant because it shows for the first time EPA, BSEE and DOJ working together, locally and in Washington D.C., to impose enhanced monitoring and auditing requirements on entities subject to enforcement actions for environmental violations in the Gulf of Mexico. The best means for avoiding liability in this case is to document compliance programs and due diligence in reviewing permit related submittals with those who prepared the documents to ensure their accuracy..
This is clearly an attempt by the government to change the corporate culture at ATP-IP and to send a message to the rest of the regulated community. While monetary penalties generally imposed upon a company may not sufficiently deter certain types of risk-taking within a corporation's culture, making a corporate official personally assume responsibility and even potential criminal liability for the accuracy of government submittals related to compliance with a consent decree should get every executives attention and hopefully their attention will radiate across their company and perhaps the industry.
Ultimately, this case underscores the government’s expectation that upper management be actively involved in ensuring corporate compliance with federal environmental laws. Corporate executives and in-house counsel in heavily regulated environments are well-advised to implement effective compliance programs and to ensure that such programs are actually followed in order to avoid even the specter of personal liability.