Pub. 2 2020-2021 Issue 1

Upstream Updates F or most of this year, the UPA and our members have been focused on the importance of regulatory certainty and its role in support- ing recovery. That means allowing companies to retain leases and permits a little longer and provide some exceptions such as allowing delayed payments and common-sense adjustments to regular reporting. Starting this spring, our state agencies such as DOGM, SITLA, and the DAQ have done a tremendous job finding a balance that continues to protect the environment, the people of Utah, and SITLA's trust beneficiaries and school children while providing stabilization and tools our operators can use toward recovery through their temporary COVID policies. So again, with a focus on regulatory certainty, we were able to progress that effort a step further during the legislature’s special session in August through SB 6004 Regulatory Relief, sponsored by Senator Winterton. SB 6004 passed with broad support in both the Senate and House (Senate 25-3-1; House 26-3-0 ). The bill does exactly what it says – provides a pause on NEW rulemakings, NEW agency fees, or fee increases for the Division of Oil Gas and Mining (DOGM), The Division of Air Quality (DAQ), and the Division of Water Quality (DWQ) for one year. There are some important exceptions to this pause. • Rulemakings that had already started formal rulemaking • Rulemakings required due to recently passed legislation • Rulemakings related to a federally delegated program (for example, any ozone non-attainment related rules required by the Environmental Protection Agency) • Rulemakings impacting counties of the first or second class (the Wasatch Front) have exemptions that carve them out from the pause. The goal of the pause is to give our industry and others that have been dramatically impacted by COVID time to focus on priorities. Rather than stretch already thin corporate resources – where we have seen significant layoffs on rulemakings that in many cases were not urgently needed. For example, pausing DOGM’s imminent bonding rules allows the industry to reinvest capital into drilling wells and keeping people employed instead of funds sitting idle to cover new bonding or pay increased fees due to agency budget shortfalls. While a review of our state’s bonding system might be warranted as called for in the 2019 legislative audit of DOGM, Utah has one of the lowest orphaned and abandoned well counts in the U.S., signaling that we do not have a looming bonding catastrophe and a one year pause is warranted. Very importantly, the rule doesn’t give any waivers or exemptions from all of the current regulations and requirements that the industry must meet. All requirements in place before this bill taking effect are still in place. It merely pauses the progression of new additional rules that are not time-critical to allow the industry to stabilize and recover before returning to those issues in July 2021. One rule that meets one of the exceptions to proceed is the penalties rule (R649-11 Administrative Penalties) stemming from SB 148 passed in the 2020 legislative session. This rule gives the Division and Board the ability to levy and collect fines. Recall that UPA supported the Division on this legislation in response to the Nov. 2019 legislative audit finding that the Division and Board lacked the tools to implement its regulations and collect fines when necessary. In recognizing that the legislative process sets specific deadlines for initiating formal rulemaking, the Board voted to move to formal rulemaking on the penal- ties rule. UPA has been actively involved with the Division and other stake- holders through this process. While we support the key concepts included in the current draft rule, some details require adjustment, and we look forward to fine-tuning the rule with the Division. Look for a first public comment period from Nov. 15-Dec. 15, with parallel informal stakeholder discussions continuing with the Division. The Division will likely provide a status update to the Board and propose a plan and schedule to finalize a revised version of the rule at the December Board meeting. Although the rules related to bonding, horizontal development, and seismic exploration are on hold until the July 2021 expiry of the rulemaking pause, UPA has certainly not paused efforts to support the industry. We have continued to participate in the Office of Energy Development’s Oil and Gas Working Group, presented at the October virtual DOGM Uintah Basin Oil and Gas Collaborative Meeting and presented on the status of the industry’s recovery to the Salt Lake Chamber. We have started exploring options to provide more stable funding to our regulatory agencies and hopefully stem the regularly increasing fees being charged to the industry. We are also planning to restart our member-only Uin- tah Basin roundtable meetings – check our website for details coming soon! 7 UP DATE