TWG Comments on the First Draft of the

TWG Comments on the First Draft of the Oil and Gas Production Protocol For Western Regional Air Partnership Oral Presentation July 22, 2009 Presented by: Science Applications International Corporation

Presentation Overview 4 Brief overview of comments 4 Detailed summary of comments on major policy and other qualitative issues: • Wednesday Afternoon—Major Policy Issues: ü Contractor emissions and related issues ü Field-level reporting and related issues ü Permit-level reporting • Thursday Morning—Other Policy Issues: ü ü TCR reporting options Potential interactions with mandatory reporting Uncertainty assessment Metrics • Thursday Afternoon—Major Methodology Issues: ü ü Stationary Combustion Methods (Chapter 12) Flaring Emissions Water Ponds Missing sources 2

Oil Industry Sector

Natural Gas Industry Sector

Brief Overview of Comments 4 Comments were received from 11 individuals, representing 9 organizations, including: • • • 3 industry organizations 1 state agency 1 environmental organization TCR 4 organizations that are members of TCR’s Verification Advisory Group and are Registry-recognized verification bodies 4 Total number of comments: 212 • Approximately one-third were of an editorial or organizational nature • Approximately one-third are technical comments on the methodologies • Remaining comments (about 70) dealing with higher-level issues are the primary focus of the remainder of this presentation 5

Brief Overview of Comments 4 Broad findings: • Consensus still lacking on contractor emissions • Broad consensus appears to exist on field-level reporting • Comments are split on permit-level reporting (some for, some against) • Appears to be a general interest in providing further guidance for estimating flaring emissions: ü A number of suggestions have been offered 6

Major Policy Issues: Contractor Emissions 4 Proposed Reporting of Scope 3 Contractor Emissions: – Requirement goes too far: 3 commenters – Requirement is good but does not go far enough: 1 commenter 41 commenter raises question: What mechanism is in place to prevent a contractor from double reporting these emissions? : • SAIC clarification: Unlike for Scope 1, there is always the potential for double, triple, etc. reporting of Scope 3 emissions; therefore Scope 3 emissions should never be summed across reporters 7

Major Policy Issues: Contractor Emissions 4 Arguments against the reporting of any Contractor Emissions: – It presents legal problems – One commenter anticipates contractors will not respond to requests for emissions-related data – Current practice does not require contractors to report emissions unless stipulated in their contracts 4 Arguments in favor of requiring and extending the reporting of contractor emissions: – Contractor emissions are significant at some fields – Drilling, completions and workovers are central to E&P – Contractor emissions occur at the command of the operator – Reporting should be extended beyond drilling, completions and workovers, because other significant contractor emission sources exist (such as mobile sources) 8

Major Policy Issues: Contractor Emissions 4 Alternative suggestions concerning contractor emissions: • Simplified procedures could be developed for reporting emissions from drilling, completions, and workovers in order to create an incentive for the optional reporting of these emissions • Contractors that emit more than 25, 000 tons CO 2 should be included as Registry Members • Contractor emissions should not be classified as Scope 3 emissions, because this implicitly asserts that contractor emissions are outside the control of the reporting entity • Members should be allowed to report contractor emissions in CO 2 -e as data by GHG may not be available 9

Major Policy Issues: Simplified Methods for Contractor Emissions 4 Allowing contractor emissions to be estimated using simplified methods when data are not available: • Against: 1 commenter • For: 2 commenters • For with caveats: 1 commenter (not preferable but needed to deal with contractors unwilling to provide data) 10

Major Policy Issues: Simplified Methods for Contractor Emissions 4 Arguments against: • Simplified methods are intended for use by TCR when both emissions are small and the effort to obtain data greatly outweighs the benefit 4 Arguments for: • If contractors refuse to provide data there is little else that can be done other than a simplified approach • It will be difficult to convince contractors to provide data without threatening to terminate them—which could disrupt long-term working relationships and make it difficult to find contractors 11

Major Policy Issues: Simplified Methods for Contractor Emissions 4 Suggested additions to the proposed exemption: • The protocol should define what constitutes an unsuccessful attempt to obtain data (otherwise it is easy for operators to circumvent the 5% threshold) • The exemption should be limited to leaseholders with leases in effect as of some date, or else the exemption will incentivize lease language designed to trigger the exemption 4 Suggested alternatives to the proposed exemption: • An alternative methodology should be provided in the protocol when contractor data is not forthcoming: ü Reporters would be required to demonstrate their attempt to obtain contractor data in order to use the alternative method ü NOTE: One commenter notes that data available to field operators could include nominal information about heat throughput capacity rating and accounting of hours worked—Question from SAIC: Is this sufficient to develop an alternative method? 12

Major Policy Issues: Other Issues Related to Contractor Emissions 4 Proposed provision of partial confidentiality exemptions for contractor emissions: • TCR does not offer partial confidentiality exemptions • One commenter is not concerned about contractor emissions from a confidentiality perspective • Another commenter sees an issue with a contractee publicly releasing contractor emissions that the contractor does not necessarily endorse: ü Public release could dissuade contractors from providing data 4 Requirement to verify contractor emissions: • 2 commenters are against this requirement (both of these are also against the required reporting of contractor emissions 13

Major Policy Issues : Field-Level Reporting 4 Proposed aggregation of emissions by field: – For: 3 commenters – Against: 0 commenters 4 Proposed separate aggregation of emissions from standard facilities (e. g. , natural gas processing plants): – For: 4 commenters – Against: 0 commenters (but one commenter suggests that for simplicity the option to aggregate all emissions to the field level should be provided) 14

Major Policy Issues : Field-Level Reporting 4 Further suggestions: • If an alternative EPA approach is developed, that approach should be adopted by TCR • TCR should adopt term like “Oil field installations” to designate field-aggregated facilities, to avoid confusion with the term “facility” • Adopt field names and boundaries, per the designation in well drilling permits, as provided by permitting authorities • We suggest aggregating emissions by different source types (e. g. , wells) within each field: ü Question for TWG: Is this unreasonable or not useful for this sector? ü Additional question from SAIC: What would the definitions of the source types be? 15

Major Policy Issues : Other Issues Related to Field-Level Reporting 4 Suggestion to associate standard facilities (e. g. , gas processing plants) within a field to the field: – For: 1 commenter – This would allow querying and calculation of a Registry Member’s total emissions for the field – Against: 1 commenter – May not provide useful info, because in many cases gas processing plants process gas from multiple fields and multiple companies 16

Major Policy Issues : Other Issues Related to Field-Level Reporting 4 Should TCR require separate reporting of in-field pipeline emissions from out-of -field pipeline emissions: – For: 1 commenter – Necessary to get true emissions totals for a field – Against: 1 commenter – Based on past experience, sometimes a single pipeline segment may be reported separately, and sometimes an entire complex network upstream of a gas plant may be reported separately. Trying to allocate back to individual pipeline segments in the latter case involves much effort for no real gain (no improvement in emissions estimates) 17

Major Policy Issues : Permit Level Reporting 4 Alternate approach of requiring two levels of aggregation (by state permit within each field): – For: 2 commenters – Against: 2 commenters 18

Major Policy Issues : Permit Level Reporting 4 Arguments in favor of aggregating by permit: – Will facilitate benchmarking the accuracy of TCR emissions against the EPA requirements (may be the only way to assess accuracy of TCR’s emission estimates) – It could help to identify and notify companies 4 Arguments against aggregating by permit: – Will add confusion and additional reporting burden without improving accuracy – Permitting practices/extents vary widely (esp. outside U. S. ); therefore reporting by permit will not add to consistency – Where permits are unit specific this will defeat the purpose of aggregating geographically dispersed sites – State and local jurisdictions will still maintain their prerogative of crafting requirements to meet their circumstances 19

Major Policy Issues : Permit Level Reporting 4 Suggested alternative: • Make aggregation by permits a reporting option as opposed to a requirement 4 Additional information relevant to reporting by permit: • One commenter anticipates that the state env. agency (i. e. , TCEQ) reporting at the facility permit level will be required • It is in alignment with state inventory reporting requirements and EPA’s GHG Reporting Rule 20

Other Policy Issues: TCR Reporting Options 4 TCR provides a number of options for defining organizational boundaries (Operational control, Financial control, Equity Share) 4 Two comments and one question for the TWG were received on these options: • The protocol does not state which reporting option is most accurate; the choice of ownership method should be explicit: ü SAIC clarification: The GRP states control + equity share is preferred • We have hundreds of partners and lease agreements; burden of tracking JV emissions is too great and the emissions too small— simplification is needed: ü SAIC clarification: You will not need to report emissions from JV operations for which you are not the controlling operator if you choose to report using a control option • Question for TWG: Would anyone ever want to report using financial control? Would it be of any value for a carbon footprint? 21

Other Policy Issues: Mandatory Reporting and Uncertainty Assessment 4 Potential interactions with mandatory reporting: • The Protocol should be careful not to undermine the prerogatives of individual states that may wish to establish more robust and comprehensive programs (either mandatory or voluntary) 4 No uncertainty assessment of the widely divergent estimation methods, raising the following questions: • What criteria will Members use to select a specific method? Significant divergence in emissions estimates for similar situations resulting from Member’s preferences? • How accurate are the reported emission estimates? • What mechanisms would motivate TCR Members to improve their estimates if all methods are equally acceptable? • Possible solution: Create and apply an accounting of uncertainty applicable to each data type, and use resulting levels of uncertainty to caveat emissions reports 22

Other Policy Issues: Metrics 4 If metrics are consistently being reported the protocol should include methods for calculating them 4 Questions for the TWG on optional metrics: • Would your customers like these metrics to help them calculate their own (upstream fuel) Scope 3 emissions? • Who would the metrics be valuable to? • Are the emissions from E&P too low to matter relative to the emissions from combusting the fuels? 4 Further questions on optional metrics: • Should the Registry require the reporting of metrics? • If so, which metrics? • Are there any metrics in the new API Compendium? 23

Other Policy Issues: Simplified Methods 4 The protocol does not define simplified methods; clarifying guidance should be provided to ensure the most accurate estimates 4 Question for WRAP SC and TCR: • In general, do emission estimates systematically increase as simpler methods are used? • If so, then use of higher order methods may be encouraged, and we recommend TCR and WRAP disclose any information available on trends in method results to assess the impact of the use of simplified methods 24

Major Methodology Issues: Stationary Combustion 4 The methods provided in Section 12. 4 (for stationary combustion devices lacking fuel consumption data) seem to be simplified methods and may not be verifiable, which raises following questions: • • What is the relative magnitude of these emissions? Is time of use metered? Can reporters document time of use? Could mass balance be used to determine fuel use instead? 25

Major Methodology Issues: Flaring and Water Ponds 4 Should we attempt to provide generic methods for flaring and water ponds rather than allow use of simplified methods? : – Yes: 3 commenters: – But 2 of the 3 notes the proposed use of simplified methods is acceptable – No: 1 commenter 26

Major Methodology Issues: Flaring 4 Comments on, and suggested methods for, flaring: – Our flaring emissions in S. Texas are very small (<5 MCFD), but those in our Louisiana and Exploration operations are large (>5%) – Eliminating flaring from the materiality threshold may discourage measurement of gas volumes – The Protocol should not assume that no measured data exists – Flare emission factors are available from CAPP and IPCC – Flare efficiencies are provided in the International Flare consortium report – It may be overly restrictive to require direct monitoring for all reporters, due to safety issues and voluntary nature of TCR: – However, where a facility has already installed monitors, TCR should require the use of those devices for reporting (but exempt all flaring emissions from the 5% materiality threshold) – Agree that flare volumes vary by orders of magnitude, precluding the use of average emission factors, but: – Facility level flare volumes are reported to the regulators in Canada (based on a combination of metered volumes and engineering calculations), and are used to estimate royalties – If reported flare volumes are adequate for royalty payments, they are adequate for GHG reporting – Companies should be able to estimate flaring emissions based on rated size and burn time 27

Major Methodology Issues: Water Ponds 4 Comments on water ponds: – We do not expect any methane emissions from water ponds – In Canada the norm is to collect produced water in atmospheric tanks; surface water runoff collected in ponds would not be a source of GHGs from dissolved gases (but might be a source from biological activities) – The method used to calculate emissions from atmospheric tanks is similar to that for estimating flash losses from oil storage tanks – One commenter points to emission factors for tertiary sumps from an ARB test program in 1980 s – There may be significant CO 2 associated with water ponds due to CO 2 affinity with water; flash studies have shown this 28

Major Methodology Issues: Missing sources? 4 Well Cellars (Not mentioned – water collection areas are) 4 Carbon Adsorbers (Unclear if there are GHG emissions) 4 Compressor Seals (Covered in Table 21. 7) 4 Other Natural Gas Processing: (Unclear why these need specific mention) • De-nitrification • Fractionation • Mercury removal 4 Pigging (Covered in pipeline section) 4 Tank Degassing (This is a form of venting) 4 Separation Units (Unclear why separators need specific mention) 4 Sumps and Pits (Not mentioned – however water collection areas are covered) 29