Audits, Investigations, and Enforcement in Oil & Gas Professor Tracy Hester Environmental Law in Oil & Gas Nov. 13, 2017

Something new – Residual Oil Zones Potential new source of secondary recovery May contain 30.7 billion bbls of petroleum in 56 fields of Permian Basin alone, of which 11.9 billion may be technically recoverable The catch – produced water, entrained gases (including methane) So what laws apply? Liabilities?

Looking back – Climate Change and Oil & Gas Upstream activities and midstream infrastructure can emit large amounts of greenhouse gases No federal climate statute: must stitch together multiple federal environmental laws Clean Air Act: Prevention of Significant Deterioration permit for “PSD-anyway” sources via choice of Best Available Control Technology New Source Performance Standards – fate of methane limits in upstream NSPS for oil and gas operations Clean Water (heat, acidity), NEPA, Endangered Species Act, Safe Drinking Water Act (and underground injection), CERCLA/RCRA

How do you know? Legal consequences of incurring knowledge of noncompliance Civil penalties Criminal liability for knowing violations Debarment Whistleblower responsibilities So how do you investigate once you think you know, but need to be sure?

The Dangers of Knowing (or the Gateway to Environmental Criminal Law) Availability of criminal liability under environmental statutes Mens rea not constitutionally required Public health offenses Responsible corporate officer doctrine Result: need to closely parse the statutory language that defines federal and state environmental crimes Clean Water Act: simple negligence Migratory Bird Treaty Act: strict liability State law – varies, but can impose strict criminal liability

The traditional tools Attorney-client privilege Applies to communications between attorney and client designed to aid in the provision of legal advice Can extend to persons who assist the attorney, including staff and retained consultants But…

The traditional tools Attorney-client privilege Who gets shielded? (Upjohn tests, control group, corp. v employees) What gets protected? (communications vs facts) The dangers of waiver (how do you use a secret? Subject matter waivers?) What law controls? (federal v state)

The traditional tools Work product protection Applies to materials prepared by attorney in anticipation of litigation or adversarial proceedings But…

The traditional tools Work product protection Controlled by state laws, which vary How far does “in anticipation” go? Who owns the protection? Like privilege, how do you use it? Can you waive it?

Self-reporting policies and audit privileges EPA Self-Disclosure Policy Texas Environmental Health & Safety Audit Privilege Act TCEQ Policy Railroad Commission Policy Majority of states provide some type of protection for self-investigation and disclosure Special case - transactions

Strategies and Tactics Prepare before it happens Once you have knowledge, be proactive Investigate under privilege or protections whenever possible Outside vs Inside Counsel

Questions? Professor Tracy Hester University of Houston Law Center tdheste2@central.uh.edu 713-743-1152 (office)