The U.S. Environmental Protection Agency (EPA) issued its final methane rule on May 12. The 600-page rule is agenda-driven and backed by pseudoscience, emotions, and unicorn dust, and it’s important to note one specific change in the final rule amounts to a regulatory taking. The final rule imposes costly regulations on wells producing fewer than 15 barrels per day, effectively shutting down those businesses.
In North Dakota, there are over 3,000 low-volume wells, often referred to as “stripper wells.” Stripper wells are defined as those wells that produce fewer than 40 barrels of oil per day; the majority produce 15 barrels or less. The drop in oil prices is already impacting the viability of stripper wells, and the state’s oil regulators have recently loosened rules to allow these wells to be idle for up to two years as the operators wait for higher oil prices.
Stripper wells ensure every last drop of oil can be produced in a region, but the low volume means the owners of these wells are very vulnerable to changes in costs related to maintaining and operating each well. When EPA expanded its methane rule to include these low-volume wells, it effectively added significant costs to each well — a decision that will likely lead operators to abandon their projects.
A press release issued by the National Stripper Well Association (NSWA) puts it bluntly. “These new rules will cripple stripper and marginal well owners and operators, and on top of historically low oil prices, we are looking at total disaster,” said NSWA Chairwoman Darlene Wallace. “By requiring the addition of new costly equipment requirements and expensive leak detection the economics within the oil and gas industry as a whole will be fundamentally changed, severely and forever.”
Forcing owners of these low-volume wells to shut them down amounts to a regulatory taking. Under the Fifth Amendment to the U.S. Constitution, private property cannot be taken for public use without just compensation. Courts have ruled this right, commonly referred to as the Takings Clause, applies to the loss of many kinds of property taken as a result of government regulation.
According to previous court decisions, a regulatory taking must meet the “substantially advances” test, which means the regulation must substantially advance a legitimate government purpose in order to be valid. EPA has attempted to identify the legitimate government purpose behind the new methane rule, but the agency’s estimated benefits, which focus heavily on stopping climate change, are certainly up for debate. But even if it can be proven the broad goals behind the policy are valid, it will be exceptionally difficult for EPA to prove its regulations targeting the very small stripper wells “substantially” accomplish those goals.
In the final rule, EPA discusses the removal of the low-volume exemption, saying, “We were concerned about the burden on small business, in particular, where there may be little emission reduction to be achieved.” This doesn’t sound as though EPA is convinced its rule will have a substantial impact, and in other sections of the rule, EPA offers wildly conflicting views. For instance, the rule in one section says comments in favor of the exemption “did not provide any data,” but in the next paragraph, EPA favorably cites a comment against an exemption for stripper wells: “One commenter indicated that low production well sites have the potential to emit high fugitive emissions.”
Apparently, the lack of data in this instance was not fatal — probably because the term “high fugitive emissions” is so ominous that it simply must be bad.
The bottom line is the application of EPA’s methane rule to stripper wells amounts to a regulatory taking. By forcing the abandonment of private property for the owners of low-volume wells, the government will need to compensate each owner for the loss of real property — unless the regulation aimed at each low-volume well substantially advances the stated legitimate purpose, a hard assertion to prove, to say the least.
It has to be noted neither President Barack Obama’s Climate Action Plan nor his commitment to the Paris agreement were founded on a legitimate government purpose, but even if EPA can conjure a supposedly legitimate purpose for its new methane rule, forcing the abandonment of stripper wells in North Dakota and elsewhere will not substantially advance that purpose.