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Securities Law Update – Public E&P Companies
Recent trends in SEC comments issued to oil and gas companies, and an enforcement action against one such company, illustrate current SEC priorities relating to the industry.
We are now at the point in the calendar-year reporting cycle when comments of the SEC staff on annual reports for the prior year, and the current year’s proxy statements, have generally become publicly available. Issuers in the energy industry may want to consider the content of frequently-issued comments specific to energy issues as they prepare for the upcoming annual reporting cycle, as those comments provide an indication of relevant SEC staff concerns. Also potentially relevant is the outcome of a recent SEC enforcement action against a publicly-traded E&P company, and a related federal appeals court decision, arising out of alleged deficiencies in its disclosures.
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EPA Actions on GHG Permitting Following the UARG Decision
As discussed in our client alert of June 24, 2014, the U.S. Supreme Court in Utility Air Regulatory Group v. EPA (UARG) invalidated EPA’s greenhouse-gas (GHG) regulations to the extent those regulations required stationary sources to obtain Prevention of Significant Deterioration (PSD) and/or Title V major source permits based solely on the source’s GHG emissions (termed “non-anyway” sources). On July 24, 2014, EPA issued a memorandum to the regional administrators outlining several next steps following the UARG decision.
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COGCC Shuts Down Wastewater Injection Site in Response to Small Earthquakes – How This Could Impact Colorado Operators
This past Tuesday – June 24, 2014 – the Colorado Oil and Gas Conservation Commission (COGCC) issued a press release, explaining that it had ordered High Sierra Water Services to temporarily cease operating a 10,000 barrel-per-day injection well in Weld County. The COGCC described the order as “a precautionary step” that would enable the agency to analyze whether well operations are tied to recent low-level seismic activity nearby.
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The Supreme Court “Tailors” EPA’s GHG Permitting Program
Yesterday, Justice Scalia, writing for a majority of the United States Supreme Court, invalidated EPA’s greenhouse-gas (GHG) regulations to the extent they require stationary sources to obtain a Prevention of Significant Deterioration (PSD) and/or Title V major source permit based solely on the source’s GHG emissions. The Court, however, also validated EPA’s extension of “best available control technology” (BACT) requirements to GHG emissions at sources already subject to PSD requirements based on criteria pollutant emissions (so-called “PSD-anyway” sources). Thus, while EPA’s authority to require BACT controls for GHGs at so-called PSD-anyway sources was upheld, the broad scope of authority claimed by EPA was significantly reduced. The case, Utility Air Regulatory Group v. EPA (“UARG”), No. 12-1146, is a significant development in EPA’s efforts at regulating GHGs in the absence of Congressional action and, as discussed below, raises a number of important issues and questions.
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Compliance with FDA Labeling Guidelines No Defense Against Federal Unfair Competition Claims
In a highly-anticipated decision, the United States Supreme Court announced today that compliance with the Food and Drug Administration’s food labeling guidelines is no defense against unfair competition claims brought by competitors under the Lanham Act. Quite the contrary – the Court found today, in the case of POM Wonderful LLC v. Coca-Cola Co., “powerful evidence that Congress did not intend FDA oversight to be the exclusive means of ensuring proper food and beverage labeling.”
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Calling All Angels: Advanced Industry Investment Tax Credit Incentivizes Early Stage Investment in Innovative Start-Up & Emerging Companies
On May 30, 2014, Governor Hickenlooper signed into law HB14-1012, creating an exciting new state income tax credit to incentivize investment in Colorado’s advanced industry companies. Subject to certain limitations discussed below, qualified investors will receive a tax credit of 25 percent of their qualified investments in qualified small businesses in advanced industries. If the company is located in a rural or economically distressed area in Colorado, the tax credit is 30 percent of the qualified investment.
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The Devil’s in the Details: EPA’s Advance Notice of Proposed Rulemaking on Hydraulic Fracturing Disclosure
On May 9, 2014, the U.S. EPA issued a pre-publication copy of an Advance Notice of Proposed Rulemaking (ANPR) requesting public comment on regulatory and voluntary mechanisms for obtaining information on chemical substances and mixtures used in hydraulic fracturing (HF) operations. EPA intends to rely for this purpose upon its Toxic Substances Control Act (TSCA) authority – namely, TSCA Section 8(a), which authorizes EPA to require chemical manufacturers and processors to maintain records and submit information to the Agency, and TSCA Section 8(d), which authorizes EPA to require the submission of health and safety studies from chemical manufacturers, processors, and distributors.
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A Sweet or Sour Development? EPA’s Reduction of Sulfur Content in Gasoline Under the Tier 3 Program
Gasoline sulfur levels have already been reduced by up to 90 percent as a result of the United States Environmental Protection Agency’s (EPA’s) Tier 2 Gasoline Sulfur Program. On March 3, 2014, EPA issued a pre-publication notice finalizing its newest fuels program (the Tier 3 Program) intended to further reduce gasoline sulfur content, as well as exhaust and evaporative emissions from vehicle engines. This Client Alert focuses on the sulfur content reduction component of the Tier 3 Program and the impact that it will have on crude oil refiners. Specifically, on January 1, 2017, the majority of refineries will need to produce gasoline and/or ethanol-gasoline blends that contain, on annual average, no more than 10 parts per million (ppm) sulfur. The impact of the new Tier 3 Program may not be as onerous for those refiners working primarily with low-sulfur (or sweet) crude oil, as sulfur levels in sweet crude are markedly lower than “sour” crude (of which sulfur content is generally greater than 0.5 percent).
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Energy Industry Faces Increased Exposure to Claims by Patent Trolls
A patent-assertion entity (PAE) or non-practicing entity (NPE) is an entity that enforces patent rights against others, but does not itself use the patents for any productive purpose. A perennial adversary of high-tech companies and startups, recent studies looking at the rise in patent litigation reveal that these “patent trolls” are turning their sights increasingly on less traditional technology innovators – including those in the energy industry.
