As most operators are aware, the North Dakota Industrial Commission (NDIC) recently approved widespread changes to its oil and gas administrative rules. The NDIC approved most of the revised rules in an Order dated June 29, 2016, with those rules effective on October 1, 2016. However, the North Dakota Legislature’s Administrative Rules Committee (ARC) remanded six sections back to the NDIC for further clarification. The NDIC approved changes to those six sections in an Order dated November 7, 2016, and the ARC unanimously approved the changes on December 5, 2016. The remaining six rules will become effective on January 1, 2017.
As the NDIC rule revision process comes to a close, we encourage you to prepare to incorporate the latest changes into your company's compliance programs. The following six considerations will help streamline the process of mobilizing company resources to address the NDIC updates:
1. Implementation Deadlines
States often underestimate the time it takes local industry to fully implement regulatory changes. As you prepare to implement the NDIC rule revisions into your company’s operations, you should consider longer-lead time items first. These include consultants you need to engage, data you need to collect, people you need to train and hire, major construction modifications to undertake, plans for in-service dates, and other longer-lead time items. Take every opportunity to get organized around the rule and handle these early-lead time items as soon as possible to avoid running up against implementation deadlines.
The updated NDIC rules address a number of specific implementation deadlines. For example, operators will have 180 days after being notified by regulators to build berms around specific storage facilities and production sites, including some saltwater handling facilities and treatment plants. Operators must also submit bond information and receive approval by July 1, 2017 for crude oil and produced water underground gathering pipelines in use after April 19, 2015 but constructed before the rules became effective.
2. Data Sharing and Protection
Stay aware of the requirements in the rules that involve new data gathering or sharing. The new data sharing requirements require special coordination among operators of production, operators of disposal, storage or sale facilities, and pipeline owners. To the extent possible, your company should consider whether to label any internal data as confidential business information to protect it from public disclosure under the rule. Be mindful that the information you submit pursuant to the rules may become publicly available.
3. Interpretation Issues
As seen during the latest Colorado Oil and Gas Conservation Commission (COGCC) rule overhauls in 2008 and 2013-2014, many companies will have questions regarding the interpretation of the revised NDIC rules. The NDIC may release interpretive memoranda or other clarifying documents as it rolls out its revised rules, as done by the COGCC. NDIC’s recently released “2016 Rule Change FAQs” help serve this purpose. However, in the event that NDIC guidance is deficient or absent, you should plan to take a position on your company’s interpretation of the rules.
Be sure to distinguish between rules that require notice only (e.g. construction of underground gathering pipelines for crude oil or produced water) versus those that require permits and thus longer planning time (e.g. saltwater handling facilities using a tank or group of tanks as a holding or transfer station not currently bonded as an appurtenance to a well or treatment plant). Know which requirements apply to your company regarding maintaining and/or filing leak detection plans, spill response plans, and perimeter berms.
4. Consider Your Whole System
Take a holistic view of your company as you consider how to implement the NDIC rule changes. For example, you may be able to use a blanket bond for all of your company’s pipeline systems rather than bonding each pipeline system separately. In addition, you should consider how the rules may impact any company assets subject to communitization agreements, joint operating agreements, or units.
5. Impacts on Operations and Pricing
Consider whether increased bonding, data collection, and reporting requirements under the rules may require heightened operational costs that could be passed on through pricing. For example, new bonding and construction requirements for crude oil and produced water underground gathering pipelines in use after April 19, 2015 may add new costs to your company’s compliance spending. While EOR unit pipelines, injection lines, and flowlines are excluded from these requirements, be aware of which requirements apply to which pipelines or pipeline systems so your company can prepare accordingly.
6. Risk Management
The revised rules present new challenges for managing risks related to environmental events, data security, and the ever-changing regulatory environment. Stay ahead of the rules to avoid non-compliance. Since some of the rules already took effect on October 1, 2016, you should evaluate your company’s current compliance with existing requirements. Be sure to educate your operational personnel regarding new protocols for environmental management such as spill containment.