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Brownfields: A Calculated Risk Missed by Tribes and South Dakota

Posted on: December 2nd, 2016
by David Ganje

The EPA defines a brownfield as “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.” The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) mandated that the purchasers of property are liable for any contamination on this property regardless of when they acquired a site. However, CERCLA also created a defense known as the “innocent landowner defense” that can only be used if “appropriate due diligence” was conducted prior to the acquisition of the property. Appropriate due diligence has been exercised if an environmental site assessment (ESA), a thorough investigation of a site’s current and previous owners, has been prepared.

ESA’s have an average cost of about $4,000 for a small business acquisition and can vary depending on variety of factors specific to the job. The typical businesses that leave behind brownfields include gas stations, dry cleaners, railroads, oil refineries, liquid / chemical storage facilities, and steel / heavy manufacturing plants. Typical hazardous materials they leave behind include hydrocarbons, solvents, pesticides, heavy metals such as lead, and asbestos.

What is so dangerous about leaving these brownfields alone? Many of these brownfields are abandoned commercial properties and tend to be an eyesore in the community. Not only can this lead to decreased property values in surrounding neighborhoods, but the property can also pose serious health risks for new tenants and their neighbors.

Once a brownfield has been identified, the EPA provides two options for cleanup, revolving loan fund grants and cleanup grants. The purpose of revolving loan fund grants is to enable states, political subdivisions, and Native American tribes to make low interest loans to carryout cleanup activities at brownfields properties. Cleanup grants provide funding for a grant recipient to carry out cleanup activities at brownfields sites.

Since the cost of cleanup is considerable, the grants may provide several hundred thousand dollars towards the cost of cleanup. This money comes with strings attached, of course. Among other things, the costs are shared with the property owner, by at least 20 percent, and the brownfield site must be cleaned up within a three-year period.

Entities eligible for the EPA’s brownfield grants and loans include state, local and tribal governments; general purpose units of local government, land clearance authorities or other quasi-governmental entities; regional council or redevelopment agencies; states or legislatures; or nonprofit organizations. If you are not an eligible entity, you may still be able to receive assistance through your state or city.

In South Dakota, the agency that provides statewide brownfield assistance is the Department of Environment & Natural Resources (DENR). DENR receives funding from the EPA for assessments and cleanup and have discretion in how to allocate those funds. For example, a national hotel chain looking to redevelop a brownfield site in South Dakota would not be eligible to apply for assistance through the EPA directly. However, the hotel chain could contact DENR for assistance and DENR could use their funds to perform an ESA or help with the cleanup.

In 2015, Sioux Falls received an assessment grant for $400,000 from the EPA. In addition to performing site assessments, they plan to use the money to update the city’s brownfields site inventory, prioritize sites, plan for cleanups at priority sites, and perform community outreach activities. They, like DENR, also have discretion in performing assessments and have made assessments available to entities who would not be eligible to apply for grants from the EPA.

With these options available to assist with brownfield redevelopment, why do so many brownfields remain untouched in South Dakota? In the last 5 years the EPA only awarded four grants in South Dakota. They gave an assessment grant to Sioux Falls and cleanup grants to Standing Rock Sioux Tribe, Cheyenne River Sioux Tribe, and Lower Brule Sioux Tribe. This suggests that other entities are not aware of the grants available to them, they are dissuaded from applying, or they do not have the structure to run a brownfields program.

Since South Dakota is not small Rhode Island, which is about the size of Brown County, businesses and other eligible entities find it is more economical to buy available land than it is to redevelop a brownfield site. This misses the mark. A brownfield site is many times in an attractive location. A brownfield site is often close to business activity and transportation or the prior owner would not have developed it.

Although the grants and other forms of assistance are “competitive,” grants are awarded based on guidelines. The deadlines for applying for assessment and cleanup grants from the EPA is December 20, 2016, so it’s not too late.

View the original article at FarmForum.net

Brownfield Due Diligence – Don’t Get Married, Get Engaged

Posted on: October 22nd, 2016
by David Ganje

Let’s not pretend. We have messed up parts of mother earth. Now let’s use the tools at hand to undo the mess and be good stewards again. Brownfield recycling, that is the brownfields program is one means to that end. If you are looking to start a new redevelopment project don’t get married, get engaged. Do your due diligence and explore the possibilities from exposing a brownfield.

The EPA defines a brownfield as “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant”. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) mandated that the purchasers of property are liable for any contamination on this property regardless of when they acquired a site. However, CERCLA also created a defense known as the “innocent landowner defense” that can only be used if “appropriate due diligence” was conducted prior to the acquisition of the property. Appropriate due diligence has been exercised if an environmental site assessment (ESA), a thorough investigation of a sites current and previous owners, has been prepared.

What is so dangerous about leaving these brownfields alone? Many of these brownfields are abandon commercial properties and tend to be an eyesore in the community. Not only can this lead to decreased property values in surrounding neighborhoods but the property can also pose serious health risks for new tenant and their neighbors. For example, the Love Canal disaster in Niagara Falls, in the late 70’s. Hooker Chemical Co. dumped over 20,000 tons of chemical waste in the unfinished and abandoned Love Canal. The canal was later paved over and sold to the city. The city then developed residential neighborhoods and schools on top of the contaminated land. About 25 years later, after an unusual amount of rain, a large amount water absorbed by the land upwelled the “entombed” chemical waste. Residents complained of chemical burns, organ failures, mental disabilities, and congenital birth defects. Eventually local families were relocated and the land was cleaned up. However, in recent years, residents on the rebuilt lands have complained of health issues similar to the ones originally reported 35 years earlier and have filed lawsuits against Hooker Chemical Co.’s parent company.

Once you suspect that the land you are planning to purchase could be a brownfield in need of cleanup what can you do? If you have not purchased the land yet you could include provisions in the purchase agreement that can indemnify you from liability for claims associated with existing contamination.

If you have done your due diligence and you know what you are getting into then you should already know that the Environmental Protection Agency (EPA) has set up the Brownfield Cleanup Program (BCP) “to encourage private-sector cleanups of brownfields and to promote their redevelopment as a means to revitalize economically blighted communities.” The BCP provides incentives through, grants, loans, training, and tax benefits to aid with the cleanup. Since the cost of cleanup is considerable the BCP may provide several hundred thousand dollars towards the cost of cleanup. This money comes with strings attached of course. Among other things, the costs are shared with the property owner, up to 20%, and the brownfield site must be cleaned up within a three-year period. In addition to tax incentives and financial assistance provided through the various governmental programs the land developer should be comforted by the fact that his contributions have also helped the environment. Furthermore, awards are given out by the NYC Brownfield Partnership providing public recognition for the most successful brownfield redevelopment projects.

Additionally, taking on a new brownfield project in NYC grants access to special municipal assistance programs through the NYC Office of Environmental Remediation (OER). The OER was established in 2009 to “design, build, and operate a set of world class municipal programs to advance cleanup and redevelopment of brownfield sites.” Since then they have developed over thirty new programs that take some of the most blighted properties in some of the most disadvantaged neighborhoods, cleans them up, makes them safer, and enables new development that brings new jobs and affordable housing.

The OER also distributes a variety of letters to aid sellers, lenders, and prospective buyers of brownfield properties. An “environmental review and assessment letter” is issued after the OER conducts an ESA on the property in question. It is used to provide assurances against liability. A “standstill letter” contains a preapproved remedy plan developed by a seller and the OER. The letter can be used to enroll the property in a brownfield cleanup program so that a prospective purchaser might receive financial assistance. This letter is intended to provide comfort to a prospective purchaser and its lender since the purchaser will be able to better estimate the cleanup costs.

If you have already started a construction on a new project and just learned of contamination, you may still be able to request a “look back letter” from the OER which would grant liability protection. Although a developer can gain liability protection after a project has started, they will not be eligible for brownfield funding incentives.

Many prime redevelopment sites are located on brownfields, don’t get married. Get engaged first and do your due diligence.

David Ganje practices law in the area of natural resources, environmental and commercial law.

Does ‘All’s Well That Ends Well’ Apply To An Oil And Gas Lease?

Posted on: February 19th, 2016
by David Ganje

In oil and gas leases, a shut-in royalty provision is essential to protect the interests of lessors and Operators alike. An Operator is the business responsible for the drilling, completion, and production operations of a well and the physical maintenance of the leased property. Oil and gas lessors like shut-in provisions because they provide that some money continues without the act of suing the Operator to start producing again or get out. Operators like shut-in provisions because they provide a path to maintaining the lease when “the market” makes production ill-advised.

As important as these provisions are for the parties, there are difficulties drafting these terms into an oil and gas lease. For an unprepared lessor, an inadequate shut-in provision allows a non-producing well to sit on his land, shut-in, for years while providing little or nothing to the lessor. For an unprepared Operator, an inadequate shut-in provision forces a lose/lose decision between bad money paid out during new production or losing both the lease and the well that took big bucks to negotiate and complete. For example, what is a fair shut-in period? 3 years? 1 year? Even leases with adequate shut-in provisions have problems in legal interpretation, and in such cases the state code should stand ready with answers. States have woefully inadequate road maps to cover these situations.

New York law requires that production continue with some consistency beyond the primary leasing term. Still, there are some important unknowns that the legislature and the courts have yet to make clear. New York courts have held that “If…there is no production and it is reasonable from the facts to determine that production has finally ceased, then the lessor may recover possession of his lands free of the lease.” But, “temporary cessation of production does not terminate the lease.” What exactly is a final ceasing of production? How long can production cease before it is no longer ‘temporarily’ so? Mechanical issues with wells can last for years, especially if not properly managed – and economic issues can make production untenable for even longer. Complicating this issue, New York courts have implied that these rules only apply when the Operators are not prevented from production by forces outside of their control (which can include market conditions). So how long can lessors be stuck with a non-producing well on their land that the Operators claim has only ‘temporarily’ ceased production because of outside forces? Answer: it is presently unclear.

Where there is no good statutory roadmap, it is vital for all parties to protect their interests with proper shut-in provisions when agreeing to an oil and gas lease. New York must fix their sparse guidance on oil and gas leases that extend past the primary leasing term. Vague statutes that force disagreeing parties into court in order to fill in the legislature’s gaps are not the answer. Astute lessors and Operators can protect their interests by writing a thorough shut-in provision. These matters are too important to be left to hand-me-down, boilerplate lease language.

David Ganje. David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law in New York. The website is Lexenergy.net

Holding Oil & Gas Leases Past Primary Term

Posted on: December 13th, 2015
by David Ganje

This page has moved to ‘Canceling’ An Oil And Gas Lease

The Utility and Controversy of Disposal Wells

Posted on: March 24th, 2014
by David Ganje

The Utility and Controversy of Disposal Wells

Greater attention, rightfully, is now paid in the oil patch to our first natural resource: water. From all fronts affected, parties are more aware of the proper stewardship of water. This stewardship does not come without controversy. That famous Geo-hydro geologist Mark Twain was correct: Whiskey is for drinking, water is for fighting. The North Dakota State Water Commission projects the amount of water needed for developing a Bakken Formation well for natural gas production at approximately three acre feet. The required water must come from a freshwater source. With the oil patch growth through 2019, Bakken wells could require as much as 51,000 acre feet (a.f.) of water. The general uses of water in the oil patch include well drilling and completion, well production, the so called use of maintenance water which requires fresh water sources, and after-production. I will focus this article on the management and disposal of used water in the ‘after production phase’ which water is often referred to as produced water or saltwater. The other important aspects of water uses, as well as tribal regulations and water law, will be left for another discussion.

During hydraulic fracturing – commonly known as fracking – water mixed with industrial chemicals and proppants (a mix of sand or ceramic particles) are forced into the well system to release oil and gas. The waste water from the process is the so called produced water or salt water. Produced water is the largest volume by-product from an oil and gas well. Along with the chemicals used during the drilling produced water is highly saline, usually 10 times that of ocean water. Its improper use or disposal would damage soil productivity or pollute near-surface water aquifers used for irrigation and drinking water. North Dakota statutes specifically prohibit this remaining produced water from polluting any freshwater supply in the state. Disposal wells are the most common final method for removal of unusable produced water or saltwater. North Dakota currently has 470 active saltwater disposal wells. The well process involves injecting the produced saltwater and associated wastes into naturally occurring subsurface formations called confining geologic zones. As technology advances the industry has other non-well options for produced water management. Such technology includes obtaining fracking water from saline groundwater sources, or from municipal waste water. A fresh water source such as an aquifer must be allowed to replenish itself (recharge), so the careful stewardship and use of water in the oil patch continually relevant. Let us look at the current practice of disposal well procedures and issues.

Upon returning to the surface there are two common methods of handling produced water:

Re-injection into the oil-producing formation for enhancing oil and gas production
Injection into an underground formation that naturally contains saltine water. This second method is also known as Salt Water Disposal (SWD) which are also called disposal wells.

SWD is considered the most economic final disposal method. The U.S. Environmental Protection Agency classify these wells as class II wells used to inject fluids associated with oil and natural gas production operations.

Under the guidelines of the Underground Injection Control Program established by the federal Drinking Water Safe Act, North Dakota has imposed regulations:

(a) for pits and ponds containing saltwater liquids and brines produced by the hydraulic fracturing operations

(b) Governing the process of underground injection wells. A technical permit application is required for these SWD wells.

A disposal well must go through an application and approval process. This is also called the siting of a well. The information the state studies from an application is comprehensive and involves detailed geologic data. A disposal well must also complete a mechanical integrity test before it becomes properly permitted and can operate. Information and data which must be submitted, and reviewed, before the state would approve an SWD well permit application include:

Geologic name of lowest known fresh water zone
A plat depicting the area and detailed description of the location, well name, and operator of all wells in the area of review. The area wide plat must include: nearby injection wells, producing wells, plugged wells, abandoned wells, drilling wells, dry holes, and water wells. The plat must also show seismic faults, if known or suspected
Testing and recording the original bottom-hole injection of the well
A description of the proposed injection program
A quantitative analysis from the two nearest fresh water wells
A written notice to all landowners within the area of review who must be notified of the proposed injection well.
This notice informs the landowners that comments or objections may be submitted
Schematic drawings of the well bore and surface facility construction.

The controversy surrounding salt water disposal wells concern spills, potential leaks and earthquakes. Spills occur. These events are saltwater surface spills not related to the disposal well or to the well integrity of a properly permitted well. Spills happen because of human error and bad equipment. As with all Bakken oil and gas production procedures, it can be said: most in the industry do it right, but some just do it. Saltwater spills occur on the surface, and are often a mechanical malfunction or error in human judgment. The risk of a spill from a saltwater disposal well is not from a properly permitted well itself. When a spill occurs it is usually during the act of storing or delivering wastewater to the disposal well. Consider for example that there are 470 active operating disposal wells in North Dakota, but more than 2100 saltwater pipelines, and it is easier to understand that the ‘getting to the well’ is where problems arise. New rules have recently been promulgated by the Industrial Commission for ‘underground gathering pipelines’. These regulations will address the construction and deconstruction [shutdown] of saltwater service pipelines.

Do disposal wells contaminate water wells and aquifers? The question is more properly stated: Do disposal wells fail or leak? Thousands of disposal wells have been permitted in the U.S. In 2012 a company called Halek Operating ND LLC was fined civilly and charged criminally by the Industrial Commission for illegal action and operating a disposal well after having been ordered to shut-in the well. In that case, among other things, the administrative law judge also found that the company had operated the disposal well without first completing a mechanical integrity test on the well. The state found no damage to aquifers from the illegal activity. I know of no failures or leaks from properly permitted disposal wells located in North Dakota and South Dakota in my lifetime. And information from both states’ regulatory agencies report that such events have not occurred.

Do disposal wells cause earthquakes? Thousands of disposal wells have been permitted in the U.S. The state of Arkansas is in a region of the continent that has recognized natural earthquake activity. Because the Arkansas Oil and Gas Commission thought that disposal wells may have been causing or aggravating earthquakes in the state it ordered a study. After the study was completed in 2011 the state regulatory authority established a moratorium on new and on operating disposal wells in an area that resulted in the closure of 4 of the state’s 700 disposal wells. Natural earthquakes are more likely to occur of course in earthquake-prone geology. A region prone to natural earthquakes is more likely to be the place where a quake caused or affected by a disposal well might occur. The Bakken and Williston basin are not known as geologically earthquake-prone areas of the continent, and the state permitting process does not authorize active disposal wells near a fault line. I know of no earthquakes caused by properly permitted disposal wells in North Dakota and South Dakota in my lifetime. And information from both states’ regulatory agencies report that such events have not occurred.

David Ganje of Ganje Law Offices practices natural resources, environmental and commercial law. The website: lexenergy.net The contents of this article are intended for general information purposes only and are not intended as legal advice.