The Nickel Report

Since the first Gulf of Mexico rig was installed in 1947, over 12,000 offshore oil and gas platforms have been installed globally. A 2016 study forecasts 600 will require decommissioning by 2021 and 2,000 more by 2040 at a cost of US$210 billion. Many newer platforms are sited in deeper waters, facing higher decommissioning costs and complexity.

The 1958 UN Convention on the Continental Shelf and 1972 London Convention broadly prohibited ocean “dumping.” Subsequent frameworks recognize exceptions permitting in situ offshore structure decommissioning consistent with internationally recognized standards. The 1982 UN Convention on the Law of the Sea (UNCLOS), for example, requires member states adopt rules no less stringent than the London Protocol, amending the original Convention to allow deliberate placement of subsea structures in defined circumstances. Thus, in situ offshore platform decommissioning has been recognized as conforming with governing treaties and legal frameworks.

An independent panel of academics, engineers and other experts, in November 2019, released a draft set of international standards for tailings storage facilities (TSF). During mining operations, ore is reduced into sand-sized particles and mixed with water before the valuable minerals are removed and the remaining milled rock slurry—called tailings—flows to the TSF, an engineered impoundment. It is estimated there are over 3,500 TSFs globally.

The driver for these draft international standards is two recent catastrophic failures of TSFs in Brazil. In January, a TSF owned and operated by Vale in the state of Minas Gerais, near Brumadinho, collapsed, sending a tidal wave of mid and other debris downstream that killed over 250 people. Another TSF owned and operated by Samarco failed in Minas Gerais at Mariana in November 2015, killing 19 people and spreading pollutants over 400 miles of surface waters, eventually reaching the Atlantic Ocean.

The reach of the CWA is “notoriously unclear.” Sackett v. EPA, 132 S. Ct. 1367, 1375 (2012) (Alito, J., concurring). It can be difficult for a landowner to understand whether wetlands or a small creek on his or her parcel, for example, are federal waters that require a Clean Water Act (CWA) permit before the landowner can begin work to build a home, develop the property, or cultivate the land. Last week, the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (Corps) (together, the Agencies) issued a new, long-awaited final rule, titled the “Navigable Waters Protection Rule,” which seeks to streamline and clarify the geographic scope of federal CWA jurisdiction.

On January 9, 2020, the Council on Environmental Quality (CEQ) released its highly anticipated proposed rule to improve its National Environmental Policy Act (NEPA) regulations. The proposed changes would be the first comprehensive amendment of the NEPA regulations since their original publication in 1978. CEQ’s proposed changes are designed to streamline and speed the NEPA review process, clarify important NEPA concepts, and codify key guidance and case law. CEQ’s Proposal is informed by comments it received on last year’s Advanced Notice of Proposed Rulemaking.

NEPA requires that federal agencies analyze the environmental effects of their proposed federal actions. This means that virtually any project that requires a federal permit or authorization could be required to undergo a NEPA review. Development of broadband infrastructure, roads, bridges, oil and gas pipelines, and renewable energy facilities are just a few examples of the types of activities that could trigger NEPA. A NEPA review can take significant agency and applicant resources, can substantially delay permits and can provide a basis for a federal court challenge to the project.

Companies that manufacture or import products containing one or more of 20 common chemicals may soon be required to disclose those activities and pay fees to offset the United States Environmental Protection Agency’s (EPA) review of those chemicals under the Toxic Substances Control Act (TSCA). In December 2019, EPA finalized its list of 20 high-priority chemicals for risk evaluation and potential regulation under TSCA:

• Formaldehyde, a chemical commonly used in building products and as a preservative;
• Five phthalates used as plasticizers in products like plastic pipes, toys, food packaging, cosmetics and medical/dental products (BBP, DBP, DEHP, DIBP and DCHP) and one chemical used to make phthalates (phthalic anhydride);
• Three flame retardants (TBBPA, TCEP and TPP) and a chemical sometimes used in the manufacture of flame retardants and fire extinguishers (ethylene dibromide);
• A fragrance additive found in perfumes, cosmetics and other consumer products (HHCB, also known as galaxolide);
• Seven chlorinated solvents found in products like cleaning solutions, paint thinners and glues (1,1-dichloroethane, 1,2-dichloroethane, 1,2-dichloropropane, o-dichlorobenzene, p-dichlorobenzene, trans-1,2-dichloroethylene and 1,1,2-trichloroethane); and
• A chemical used to manufacture synthetic rubber (1,3-butadiene).

In his annual letter to CEOs, Larry Fink, CEO of BlackRock expressed his belief that climate change and sustainability were important considerations in investment risk assessments. Investment based on these concepts is often captured under Environmental, Social and Governance Criteria, commonly called ESG. In his letter, Mr. Fink emphasized that he believes “we are on the edge of a fundamental reshaping of finance.”

BlackRock’s letter builds on the ever-advancing trend in corporate institutional investing over the past decade regarding the examination of corporate valuation and investment risk within the context of ESG issues, otherwise referred to as sustainable investing.

On January 9, 2020, WildEarth Guardians and Physicians for Social Responsibility filed suit in the DC District Court challenging the Bureau of Land Management’s (BLM) approval of over 2,000 oil and gas leases. The leases were sold through 23 different lease sales, spanning from December 8, 2016, to March 20, 2019, and they cover over two million acres of public lands across five western states—Colorado, Montana, New Mexico, Utah and Wyoming. The conservation groups contend that BLM continually fails to fully account for climate change impacts associated with oil and gas leasing.

Last month, the Supreme Court held oral argument in a case that addressed cleanup obligations for potentially responsible parties (PRPs) at Superfund sites. In Atlantic Richfield Company v. Christian, a company tasked with remediating one of the nation’s largest Superfund sites is urging the Supreme Court to overturn a Montana Supreme Court decision that permitted residents to sue the company for additional restoration damages, despite its ongoing cleanup efforts under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).