The litany of grievances—and concerns—runs long for a Permian Basin oilman living in a nation where the commander in chief is pulling out all the stops to fight climate change.

“Biden’s attack is through this alphabet soup of agencies: the EPA, FERC, DOI, SEC, the CEQ (Commission on Environmental Quality),” Steve Pruett, chairman of the Independent Petroleum Association of America and CEO of Elevation Resources, said during Hart Energy’s SUPER DUG Conference & Expo. “Oh, and I left out the FTC [Federal Trade Commission] now that’s coming after our own Scott Sheffield with baseless accusations. Not to mention the FTC is putting a monkey wrench in a whole bunch of transactions.”

Protections for the dunes sagebrush lizard living in the Permian, changes to the National Environmental Policy Act, the LNG export pause, federal leasing slowdown, rising royalty rates and long permitting times made Pruett’s list. He highlighted several regulations, which have sparked angst and lawsuits, that companies should prepare for if they haven’t done so already. Methane emissions are at the forefront.

The U.S. rolled out a Methane Emissions Reduction Program as part of the Inflation Reduction Act (IRA) under the Clean Air Act. The program, which targets methane emissions from the oil and gas sector, includes a methane tax that requires certain companies to shell out hundreds of dollars for each metric ton of methane released into the atmosphere.

Methane emissions are one of the biggest drivers of climate change as the molecule traps heat in the atmosphere. Methane, the largest component of natural gas, is also a known precursor gas to ground-level ozone, which can be harmful to humans, plants and materials depending on exposure levels.

Methane fee’s ‘dirty secret’

The tax on methane emissions—the Waste Emissions Charge for methane—starts this year with the first payments due March 31, 2025.

Applicable to oil and gas facilities that emit more than 25,000 metric tons of CO2 equivalent per year, companies must pay $900 per metric ton for 2024 reported methane emissions. That increases to $1,200 per metric ton for 2025 emissions and rises to $1,500 per metric ton from 2026 onward.

“One of the very dirty secrets that may hit some of you is, and I hope it doesn’t hit us, is that your midstream partner may have the contractual right to pass those carbon taxes back to the producer, which would be devastating because their threshold is a lot lower than ours,” Pruett said. “We’re 0.2%. They are .05% as a threshold. Any excess methane emissions over those thresholds are taxable at $900 per metric ton, going to $1,500 in a couple of years. So, that tax will be payable next month. So, hold on to your hat. If you’re not a Subpart W reporter, the EPA through the state agencies will be coming to see you soon.”

In the rule’s new subpart OOOOc (Quad Oc), states may adopt the standards set in the methane emissions guidelines for an existing source or develop their own. Subpart OOOOb (Quad Ob) affects facilities and sites installed after Dec. 6, 2022.

What’s bothersome is that companies compliant with Quad Ob don’t have an out for this year’s tax and next year’s tax, Pruett said, calling the fee unconstitutional.

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Reducing greenhouse-gas emissions has been at the top of the Biden administration’s efforts to combat climate change. In addition to incentivizing investment into renewable energy, targeting a carbon-free power sector by 2035 and net-zero carbon emissions by 2050, the U.S. has clamped down on fossil fuels.

The move comes as energy-related CO2 emissions fall in the U.S. amid an ongoing shift from coal- to natural-gas fired power generation. The industry has also focused efforts on methane abatement, carbon management and oilfield electrification.

“We’ve got a great record of reducing emissions across all the basins in the United States. In my home base, the Permian—which is on the bull’s eye of the EPA—down 32%,” despite production growing to 6 MMbbl/d and 25 Bcf/d of wellhead gas from 800,000 bbl/d and 6 Bcf/d in 2007.

“So, great record. We still have room to improve,” he said.

Hurting mom and pop E&Ps

The oil and gas industry, which meets the majority of the nation’s energy needs, remains the largest industrial source of methane in the U.S.

Elevation is among the companies taking steps to lower emissions.

“We have about [a] $120 million capital budget. We spend a couple of million a year on these compliance matters. Of course, we have high-rate modern facilities,” Pruett said. “In some ways, it’s a little easier to access great technology” such as vapor recovery towers, vapor recovery units, high efficiency flares and electrified compressors.

“So, we’re in a good place. What I do worry about as chairman of IPAA is the smaller producer.”

Pruett referenced a conversation he had with an EPA administrator when he compared those oil men and women with low-producing so-called marginal wells to mom and pop farmers and cattle ranchers with only 20 head of cattle or 40 acres of farming.

“Don’t think of them as the fat cats. … They’re struggling to make ends meet,” he said, calling regulation costly.

The Methane Emissions Reduction Program cracks down on marginal conventional wells. The EPA is also funding methane emissions reduction efforts, providing more than $1 billion in assistance through various funding opportunities. In December 2023, the EPA and U.S. Department of Energy announced a conditional commitment to 14 states to receive a total of $350 million in formula grant funding—through the IRA—to help measure and lower methane emissions. The federal agencies say they planned to make additional competitive solicitations available this year.

Pruett said a visit to the Permian Basin by EPA Regional Administrator Earthea Nance and others was encouraging.

“It’s the start of a dialogue, so that’s encouraging. But the one thing I hope we accomplished, in addition to seeing the high level of compliance in our efforts to reduce emissions, is that we’re not a bunch of fat cat oilmen,” he said. “We live out in the environment. I’ve got an oil well half a mile from my house and a rig a mile from my house. And we drink the water. We breathe the air.”

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