The year 2020 was hard for most people and companies, and Bright Sky Environmental was not spared, said founder and president Kat Galloway. “All of our clients paused or pulled the plug on their projects with us, as they dealt with the oil price collapse and handling their own finances. So they didn’t have the extra funds to spend on environmental compliance.”
Some of those clients spent the down year “cleaning up their environmental balance sheets,” she said. Updating permits to reflect changes in operations and regulations headed that list. Those projects kept Galloway and her team occupied during the slow times.
The company focuses on air permitting, compliance, and due diligence.
Work dealing with permitting and planning for new projects—wells, facilities, and more—took a particular hit, and is only just in Q3 starting to come back. Fortunately, however, ongoing environmental projects regarding compliance, taxes, record-keeping, and issues related to continuing business is steadier.
Debi Sport Moore, president of Sport Environmental, a Terracon Company, says her company fared better than most. “For Sport, we were very fortunate during the pandemic. We were able to finally roll out our new LDAR service package.” The fact that Sport specializes in environmental compliance services on an ongoing basis means “we have a natural work stream without sales.”
Because the Sport staff often works on remote locations, they were only minimally affected by quarantining and social distancing requirements. Often, they work alone on these sites anyway. Said Moore, “I didn’t realize the benefit of our work style until I reflected back on our last year. We were blessed with substantial growth in 2020.”
With the rising importance of ESG and with updates on regulations, companies large and small are looking for more information, Galloway pointed out. “What we’ve seen is those companies wanting to better understand their environmental metrics. They want to improve their internal tracking toward emission reductions.”
This interest in baseline reporting, as well as in ongoing tracking, has given Bright Sky a number of new projects in recent years. “You have companies who are setting targets, and if you’re going to have an ESG target, you’d better be able to quantify and track against that and report it. Whether you report internally or externally, that’s your own decision. We’ve seen an uptick in that kind of work,” Galloway said.
She sees this baseline establishment as a key part of compliance. “Quantifying that is a starting point.”
Part of the process involves decisions about what data is needed and how to track it accurately over time. “I’m seeing a lot of work on data management and automation in the oilfield.” Automation allows producers to see, in near-real time, equipment data as well as production. She listed run-time meters, fuel consumption, and other air emissions-related information. Automation is the best way to get the data quickly and consistently, and getting it into a useful database.
Environmental companies can help clients identify what data they need and the best means of reporting, understanding, and reacting to the gathered information.
There is often a difference, Moore added, between emissions as calculated by government formulas and emissions as measured in real time onsite. “Historically, we’ve done greenhouse gas calculations for the EPA. Last year we added LDAR [Leak Detection and Repair] for the state [of Texas]. Now you can use your LDAR credit toward your EPA total, to generate your methane footprint under ESG.”
The last year has seen Sport’s team members evaluating how to quantify those credits, and here’s where the reality may diverge from historic efforts. “If everything is calculated with a government tool, is it really reflective of actual emissions? So we can do some direct measure of actual sites.” Accurate baseline numbers can help producers set realistic emissions reduction goals for the future.
A major factor in delivering accurate numbers, she continued, centers mostly on what was included in the self-reporting process. “Sometimes they included all of their operations, sometimes they just included a subset. It wasn’t on anyone’s radar.”
Now, data like that is becoming available to the public and producers are beginning to realize that they’re being compared and evaluated based on a number that may not be complete.
“E&P companies are experiencing an increased demand to demonstrate environmental compliance and stewardship to landowners, environmental lobby groups, equity partners, and other interested parties.” This growing group of “interested parties” has resulted in greater compliance costs.
The whole idea is new to more companies than one might expect. In a somewhat surprising revelation, when asked if she was getting inquiries from many companies just now starting to monitor emissions, Galloway said, “I’m seeing a lot of brand new.” But it’s because in the past, she noted, “You haven’t necessarily had to have that level of information because there hasn’t been a regulatory need for it” in many cases.
Equipment run times and related information may have previously been stored on the equipment itself, retrieved only when someone visited the site and took a reading. Now companies are looking to track this more closely, requiring sensors and software to collect and sort the information.
Moore notes that Sport has focused on automated data gathering, which give those clients a head start on baseline data. “We are utilizing the data collected to determine greenhouse gas [GHG] emission baseline totals as a jumping off point for methane reduction goals under these ESG programs.”
She adds, “There is a delicate balance between demonstrating environmental compliance and utilizing the available compliance tools as a matrix of environmental stewardship performance. E&P companies in the general course of business are now required to have a deeper understanding of calculated vs. actual representation of baseline matrices to be utilized for reduction goals.
Environmental monitoring requirements target larger facilities more than smaller ones, so as a company grows its assets it may find more reporting issues. On the other hand, ESG is more of a factor now than ever before, Galloway noted. These pushes may currently originate more from the top. “As the CEOs and the leadership is saying, we want to commit to these targets—it trickles down to the environmental group, and to facilities and operations to craft ways to do this.”
The change of administration from 2020’s election process provided different challenges but did not materially change the regulatory environment. “It’s really apolitical,” she said. “In times like this, where the administration is curtailing new production and increasing regulations, then you’re doing work to help clients comply, understand, and plan for the new regulations. And when you have an administration like the previous one, where the regulations were not as strict and there was a lot of exploration, then you’re dealing with the work associated with permitting all the new sites.
Sport Environmental does see an uptick, but there are caveats. Said Moore, “Typically, when a democratic President is in office, we see an influx of environmental requirements. Work picks up but increased profitability is not guaranteed.”
Tracking changes in taxes and regulations is a key part of Sport’s service at any time, but especially with direction changes associated with a new administration.
Another driver of increased interest in environmental compliance comes from those investing in the business, which broadens the spectrum beyond publicly traded companies that previously led the way. “I think more, now that equity partners are requesting that you really control your environmental liabilities and your risk by having stewardship, I think they’re going to have to do all the normal regulatory compliance in order to demonstrate increased stewardship.”
New Mexico’s Permian Basin denizens are concerned about some new gas emission regulations recently passed by that state’s legislature, said Galloway. Called the Gas Capture Plan, it requires that “operators reduce their flaring each year to achieve a gas capture rate of 98 percent by the end of 2026.”
Operators failing to meet those standards may be penalized by the state’s Oil Conservation Division (OCD) by shutting in production or denying drilling permits.
Another way to handle the tightening of New Mexico regulations is to leave the state and concentrate on the more-friendly Texas side. Moore explained, “To be honest, most of our existing clientele have sold off their New Mexico properties and are focusing on their Texas assets. Typically, New Mexico has more stringent environmental regulations than Texas. In particular, the NMOCD methane rules are going to present some challenges for New Mexico producers.”
What can’t be escaped is the fact that changing requirements from stockholders, investors, the government, and many citizens is pushing the oil industry to greater environmental awareness.
Paul Wiseman is a freelance writer in the oil and gas sector. His email address is [email protected]