Pub. 1 2019-2020 Issue 4

Upstream Updates T he churn of slow and steady movement through the rulemaking process continues for our producers, both with the Division of Oil, Gas and Mining (DOGM) and the Division of Air Quality (DAQ). There have also been a number of upstream legislative discussions; see the legislative update for details. In June, DOGM briefed the Board of Oil, Gas and Mining on six rulemakings. Forced Pooling, which has been years in the making and a high priority issue for UPA, was recently finalized and became effective on June 1. Thanks goes out to all of our operators and supporters on their engagement in this major milestone, but especially to Fred MacDonald, now with Lear and Lear, for leading UPA’s position in front of the board. Also nearing conclusion is Operatorship, which was published in the Utah State Bulletin on June 15th, following several months of informal rulemaking again including significant UPA engagement. Final comments were due July 15 and the board is likely to approve the final rule at their July 22nd hearing and the rule is expected to be effective by the time this is published. The current focus has now shifted to the oil and gas penalties schedule following passage of SB 148 last year, giving the division and board the ability to levy and collect fines. Recall that UPA supported the division on this legislation as a response to the November 2019 legislative audit. As presented by Director Baza to the board in June, the division's target is to enter formal rulemaking on the penalty schedule at the August 26th board meeting in order to meet the statutory November rulemaking timeline. Also on deck are three additional new rules: bonding rules (slated for formal rulemaking in September), horizontal rules (targeted for formal rulemaking in December) and seismic exploration rules (planned for Q1 2021). Due to COVID related demand drops and spring oversupply, we are facing long-term depressed prices, resulting in corporate restructuring and layoffs. Corporate resources to prioritize these rulemakings are stretched thin and the likelihood of significant new development in the near term is very low, raising a question as to the urgency and priority with which these rules should progress, given the current challenges the industry is navigating. UPA will continue to engage with the division, board and legislature to impress upon the importance of regulatory certainty and ensuring that the constant parade of new rulemakings doesn’t harm the competitiveness of and investment into Utah’s world-class resource. Similarly, there are multiple new rulemakings active with the Division of Air Quality (DAQ) that impact both our upstream and downstream members. For our upstream members, R307-150 Emissions Inventory Rule Changes was voted to formal rulemaking in June, is being moved forward to implement a requirement of the Clean Air Act (CAA), and requires an annual emissions statement for non-attaining areas (the Uintah Basin and Wasatch Front). While progressing this rule is necessary, UPA has concerns with implementation details and will be commenting prior to the August 3rd comment period. Also voted to formal rulemaking in June was R307-102 — Penalty Assessment, which would allow the Department to charge varying fees that could include, for example, annual base fees; varying fees for different source sizes, types, and pollutant classes; and administrative fees. UPA is further evaluating this rule, which also has an August 3rd comment period deadline. The pace of new rulemaking affecting the oil and gas industry has been swift, both nationally and within the state. UPA will continue advocating that now is not the time to change the rules of the game. Some of these rulemak- ings have legislative timelines or timelines dictated by EPA and certainly those should progress as needed. Other rulemakings, such as changes to bonding requirements and fees schedules, have the potential to consider- ably increase costs and seem to be out of touch with the reality that most of our operators are grappling with today. Unless there is an urgent need to progress a new rule, we support pausing until the COVID response and unprecedented challenging economic environment has started to recover, operators have adequate resources to thoroughly engage, and we can ensure that we are not driving valuable investment in our energy resources out of the state. While rulemaking has certainly been top of mind, UPA has also been an active participant in the Office of Energy Development’s Oil and Gas Working Group, consisting of a broad group of stakeholders (OED, UGS, DOGM, SITLA, operators and others) to evaluate how best to respond to the current market challenges and support the industry. Similarly, DOGM held its first virtual Uintah Basin Oil and Gas Collaborative Meeting, which you can see at https://www.youtube.com/watch?v=gZnsh8tXtLs 7 UP DATE