The Colorado Oil and Gas Conservation Commission (Commission) recently published an updated Rules 1101 and 1102: Flowline Guidance (Guidance)¹ confirming the agency’s intent to begin random audits of operators’ flowline integrity records in 2016 to determine compliance with applicable Commission flowline regulations for the 2015 calendar-year. These audits will continue indefinitely thereafter. The Commission’s focused oversight of flowlines will impact oil and gas operators via potential increased enforcement and penalties for any non-compliance with the Commission’s rules governing flowlines.

The Guidance also details an alternative method for complying with flowline integrity testing requirements and provides recommended best practices for flowline installation and integrity testing. Flowlines are broadly defined in the Commission’s 100-Series Rules as “those segments of pipe from the wellhead downstream through the production facilities ending at: in the case of gas lines, the gas metering equipment; or in the case of oil lines the oil loading point or LACT unit; or in the case of water lines, the water loading point, the point of discharge to a pit, the injection wellhead, or the permitted surface water discharge point.”

The Guidance responds to the Commission’s February 1, 2014 report titled Risk-Based Inspections: Strategies to Address Environmental Risk Associated with Oil and Gas Operations (Risk-Based Inspections Report) which identified equipment failures, including pipeline failures, as a significant source of spills. The Risk-Based Inspections Report presents an evaluation of 1,638 spill reports and Commission staff interviews and concludes that spills are more likely to occur from equipment (process piping, pipelines, tanks, and valves) failures during the production phase of oil and gas development.

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On May 27, 2015, the Environmental Protection Agency (EPA) and the Army Corps of Engineers (Corps) issued a pre-publication final rule defining the jurisdictional “Waters of the United States” regulated under the Clean Water Act (CWA). Unless blocked by some federal legislation or court order, the final rule will go into effect 60 days after publication in the Federal Register. That effective date will likely be around mid-August.

As with the proposed rule—on which the agencies received more than 1 million comments—EPA and the Corps purport that the final rule promotes clarity, certainty, and efficiency by “providing simpler, clearer, and more consistent approaches” for determining which waters are regulated under the CWA. However, many regulated operators oppose the final rule and assert that it unlawfully expands federal jurisdiction.

Much of the final rule incorporates long-standing EPA and Corps guidance, regulations, and common practice regarding which waters are considered jurisdictional. Some portions of the rule, however, break new ground. Focused largely on applying the “significant nexus” test from Justice Kennedy’s concurrence in the 2006 U.S. Supreme Court Rapanos case, these new provisions in practice could operate to substantially expand the areas regulated under the CWA. In the Western U.S., the final rule poses unique concerns for the regulated community due to the region’s topography and aridity. Several Western industries in particular—including the oil and gas, mining, construction, municipal, renewable energy, and agricultural sectors—should closely examine the final rule for potential impacts to planned and ongoing projects and operations.

This client alert describes the final rule and areas of particular concern to operators in the Western U.S.

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On June 4, 2015, the U.S. Environmental Protection Agency (EPA) published a draft study report entitled Assessment of the Potential Impacts of Hydraulic Fracturing for Oil and Gas on Drinking Water Resources, which analyzes the relationship between hydraulic fracturing and drinking water. The draft report reflects over four years of work by EPA; is the most robust report on this subject to date; and includes the review and analysis of over 950 published sources and reports, data from at least 20 states and 1,500 counties, and participation by stakeholders from states, non-governmental organizations, tribes, industry, academia, the public, and EPA’s Science Advisory Board (SAB). This Client Alert summarizes the key findings of the draft report, namely that hydraulic fracturing has not had widespread or systemic negative impacts on the nation’s drinking water.

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Faced with the increasing threat of cyber attack, boards of directors and C-level executives of public and private companies alike are becoming increasingly aware of the need to establish and maintain strategies at the C-level for preventing, detecting, and containing cybersecurity threats. While high-level decision makers may not be directly involved with the day-to-day operations of their information technology or data assets, it is becoming increasingly clear that they must have at minimum a basic understanding of how company network systems susceptible to cyberattack are managed to fight cyberattacks. As Nick Milne-Home of the software lifecycle management firm 1E pointed out recently at the MIT Sloan CIO Symposium, “If you focus on security only, without systems management, it is like putting a state-of-the-art burglar alarm into your home while leaving the doors and windows open.”

While federal policymakers have signaled deep concern about cybersecurity issues and the important role these issues play in the health of the nation’s economy, Congress has not yet made any significant move to compel business practices in the area of cybersecurity. In lieu of legislation, several federal agencies have developed guidance as to what are considered “best practices” to reduce the risks associated with cybersecurity threats. However, much of the available guidance–for example, the February 2014 Cybersecurity Framework by the National Institute of Standards and Technology (NIST)–is aimed at IT experts, which makes it of limited use to audiences unfamiliar with technology industry jargon and other existing security standards that help to form the agency guidance.

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On May 5, 2015, the Treasury Department issued proposed regulations that provide guidance on whether income of a master limited partnership (MLP) related to minerals or natural resources constitutes “qualifying income” for purposes of classifying the MLP as a partnership (and not as a corporation) for tax purposes.

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Last Fall, EPA published revisions to its 2009 guidance on EPA’s model agreements for settlements under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), entitled Revisions to 2009 ARC Memo and Issuance of Revised CERCLA Past Cost, Peripheral, De Minimis, De Micromis, and Municipal Solid Waste Settlement Models (the Guidance). Although the Guidance covers a number of topics, this Alert focuses on changes affecting potential contribution rights and the scope of potential contribution protection under CERCLA § 113(f). While the revisions are largely helpful in nature, companies and other entities affected by CERCLA should be aware of the recent changes, as the changes may affect their ability to recover costs or receive contribution protection.

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You are on the 13th tee of your Saturday morning golf game. This game and the rest of your foursome are just the distractions you need from your job as CFO of a rapidly growing electronic parts distribution company. When you glance at your silenced smartphone, however, you notice a string of missed calls from your chief technology officer. You step back from the tee to listen to several messages, including a nearly hysterical one from your CEO, ranting about the company website, servers, unscrupulous hackers, and other indecipherable topics. The gist is that the company website and servers have been hacked and several types of sensitive information may have been accessed, including customer information and possibly even company trade secrets.

So what do you do next?

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On March 24, 2015, the U.S. Supreme Court decided Omnicare v. Laborers District Council Construction Industry Pension Fund, a case with which public companies should be familiar before their next issuance of securities.

Omnicare addresses the circumstances in which companies are liable under Section 11 of the Securities Act of 1933 for statements in registration statements that later prove to be incorrect. The Court held that liability may exist if any of the following are true: (i) a statement of fact is incorrect, (ii) a statement of opinion is not sincerely held, or (iii) a statement of opinion omits accompanying disclosure of material facts supporting the opinion that a reasonable investor would consider important or disclosure that the opinion is tentative.

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A March 2015 United States Supreme Court case delivers a short-term victory to online retailers who do not collect sales taxes in Colorado, while at the same time sending a clear warning about the future viability of the practice.

Out-of-state retailers without a physical presence in a state have not been required to collect sales taxes under a nearly 50-year-old Supreme Court case involving a catalog retailer, Quill Corp. v. North Dakota. In an effort to remove the sales tax advantage enjoyed by many online retailers, Colorado enacted a statute in 2010 requiring non-tax-collecting online retailers whose gross sales in Colorado exceed $100,000 to collect and report information to the Colorado Department of Revenue on their Colorado customers. The object of the law was to help the Department of Revenue collect use taxes–the state’s substitute for sales taxes for purchases made from out-of-state retailers, which are generally required to be paid directly to the state by the customers.

In Direct Marketing Association v. Brohl, a trade group representing online and catalog retailers convinced a federal district court that Colorado’s information collection and reporting requirements were unconstitutional. The Court of Appeals later held that the district court did not have jurisdiction over the case, but the recent Supreme Court opinion allows the challenge to Colorado’s law to continue by deciding that the case could be heard in federal court.

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