The Office of Natural Resource Recovery (ONRR) is at it again. This time, they have proposed a rule that would effectively water down the ‘knowing and willful’ standard that the agency must use to prove that an oil and gas producer made a mistake in royalty payments. In addition, the rule would eliminate any extension requests for hearings–the hearings would have to occur within 30 days regardless if an operator is still awaiting information from the ONRR. With the issues we discussed at the ONRR workshop pertaining to unbundling and the use of their ‘numbers,’ a change in the knowing and willful standard and penalties will have disastrous impacts on small producers. In addition, the agency’s historic lack of responsiveness is now a bigger issue than ever with the set timeframes in this proposed regulation.

Draft IPAA Comments ONRR Civil Penalties July 2014.pdf
ONRR Fed reg notice.pdf

Specifically, ONRR states;

“Our intent is to define ‘‘knowing or willful’’ as the lowest possible standard so that it encompasses all higher standards. Therefore, we are proposing that the definition of ‘‘knowing or willful’’ means gross negligence. ONRR believes that ‘‘gross negligence’’ requires only that it show a company or person has ‘‘fail[ed] to exercise even that care which a careless person would use. The proposed definition encompasses situations in which a corporation or individual in a corporation acts with actual knowledge, as well as situations in which the corporation acts with deliberate indifference or reckless disregard. It does not require specific intent (emphasis added). It is intended to penalize companies whose management remains deliberately ignorant of the actions of their employees and agents. It is also intended to penalize companies whose management is in reckless disregard as to whether their employees and agents are committing prohibited acts. In addition, our intent is to hold persons who are subject to FOGRMA strictly and vicariously liable for the prohibited actions of their employees and agents. The definition would specifically state that knowing or willful means the mental state of a person (which includes corporations), including the person’s employees or agents. This means that the corporation/person has the same knowledge or willfulness as its employees and agents. The corporation/person is thus liable for the civil penalty even if the managers, principals, or owners may not have actual knowledge of specific prohibited acts their agents or employees commit.”

Obviously, the implications of this change at ONRR and the way they impose their penalties will have huge implications on IPANM members. I am working with attorneys at the Norton Rose Fulbright firm and IPAA to get comments to the ONRR by their deadline, which is July 21st.

Mark Barron, at the Fulbright firm is the lead attorney on this issue. Anecdotal evidence of your dealings with ONRR, especially from small producers on the unbundling issues will be important. The difficulty in dealing with a non-responsive agency also needs to be highlighted. The following questions were sent out to IPAA members in order to prepare draft comments. If you want to respond to any of these questions or comment on the draft, it is attached to this email.

1. ONRR Proposes to Eliminate the Ability to Seek a Stay of Penalty Accrual.
Can you provide examples of how an inability to stay the accrual of civil penalties during the hearing and/or appeal process would make challenging ONRR notices and orders impossible or cripple business operations during the period a challenge is pending?

2. ONRR Proposes to Eliminate Time Extensions for Hearing Requests.
Can you provide examples of circumstances in which a timely hearing request challenging an ONRR notice or order could not be submitted within thirty days, irrespective of the company’s diligence and organizational abilities?

3. ONRR Proposes to Prohibit Challenges to Courtesy Notices.
Can you provide examples in which ONRR issued you a courtesy notice informing you of additional penalties that have accrued, where the agency made purely mathematical miscalculations?

4. ONRR Proposes to Eliminate Early Discovery in Hearing Proceedings.
Can you provide examples in which after requesting a hearing to challenge an ONRR notice or order, you engaged in early discovery with the agency that revealed significant or material facts that helped to narrow the disputed issues or that encouraged early settlement?

I have attached a copy of the Federal Register notice of proposed rulemaking and have also attached a DRAFT comments response that has been sent out to IPAA members on this issue. Feel free to comment on that draft as well.

Please send your comments to Karin Foster at karin@ipanm.org by Wednesday July 17th. IPANM will be a cooperating association on the IPAA comments but I would also like to file our own comments– particularly if we have our own stories to tell. Obviously, your company name will be kept confidential.