Abstract

Compliance with production related environmental regulations is required regardless of the quantity of production or the price and represents a constant cost to the operator. Many operators include the cost of complying with environmental regulations as an increment of operating and maintenance. This method, although practical, does not set out the cost of environmental regulatory compliance. Regulations which require submission of applications for obtaining permits or reports for monitoring operator compliance can be budgeted as a part of the annual operations plan or drilling program. Unexpected events such as spills, uncontrolled formation pressures, and well failures during production represent unplanned costs which may devastate the financial resources of the operator, particularly if the operator has not set aside contingency funds to address the "average special situation."

Fines and penalties for noncompliance with State and Federal environmental regulations are unnecessary costs and provide no benefit to the operator in correcting an environmental situation. In most situations, a strong line of communication between the operator and the State regulatory agency limits the cost of environmental compliance to necessary activities. Regulatory agencies usually are willing to work with operators to solve environmental situations which are complex technically and costly to rectify. These situations are less costly if the regulatory agency becomes aware of the situation through notification by the operator rather than through routine inspection. Regulators have basis for the assumption that environmental problems increase with a prolonged period of low oil prices.