A Lack of Due Diligence Can Lead to High Penalties in Louisiana
Oil and gas production facilities and associated tank batteries are routinely bought and sold in Louisiana without proper due diligence. In other words, they are purchased without checking the full regulatory status of the facilities. This ignorance has led to high penalties.
Many purchasers are savvy enough to comply with the ownership requirements of the state oil and gas regulatory agency, which is the Louisiana Department of Natural Resources (LDNR). Purchasers will register as an oil and gas operator in Louisiana and change the operator of record for the wells. However, a surprising number of purchasers, even some sophisticated ones, do not know the state environmental agency, the Louisiana Department of Environmental Quality (LDEQ), has permit requirements that must be followed.
In Louisiana, an air permit is required prior to emitting pollutants into the air. One major exception is for facilities that emit less than 5 tons per year of any single pollutant or 15 tons per year of all pollutants combined. Oil and gas production facilities and tank batteries are subject to this permit requirement, except in the rare case the oil and gas facility or tank battery emits less than the statutory exemption level. So, most require a permit. There is a regulatory permit for oil and gas well testing, a standard air emissions permit and a standard permit for oil and gas production facilities. However, the regulatory permit requires at least a notification and the standard permit requires an application.
However, many oil and gas production facilities are unpermitted. LDEQ seeks to actively identify these facilities. For example, LDEQ initiated an effort several years ago to match oil and gas operators that were registered with LDNR with permittees registered with LDEQ. If an entity was listed as an operator but did not have an LDEQ permit, LDEQ targeted those operators and brought them into compliance. Of course, hefty fines were levied.
Additionally, many permits are outdated. Over the years, operators have added or removed tanks or changed equipment or processes to such an extent that there are multiple discrepancies between the permit and actual operations. LDEQ has seized on this scenario as well, fining companies for adding equipment or tanks without modifying the permit.
Finally, for facilities that do have an LDEQ permit, regulations require those permits be transferred within 45 days of the change in ownership. LDEQ has a simple form to initiate the transfer process. However, LDEQ has also fined purchasers who have not submitted the required form within the required time. In fact, LDEQ takes the position that the purchaser who does not file in a timely manner is actually operating without a valid permit.
The penalties can be substantial. The law allows LDEQ to assess a penalty for each day of violation. However, for operating without a permit, LDEQ will usually treat each year as a separate penalty event. For example, if a facility was operating for five years without a permit, that equals five distinct penalty events. Under LDEQ’s penalty policy, the violation is usually classified in such a fashion that LDEQ could assess a penalty from $7,500 to $55,000 per facility for five years of operating in violation.
In short, it pays to conduct basic due diligence to determine if the facilities being purchased have all the proper permits. If not, permit applications should be filed immediately upon obtaining ownership. A self-disclosure notice should be considered and a request for interim operating limits should be requested. If the facility does have a permit, it should be transferred within 45 days. If the permit does not reflect current operations, a modification should be filed immediately to reflect current operations and emissions. In this way, the problem is corrected immediately upon obtaining ownership.