In the never-ending battle over the boundaries of FERCjurisdiction in the Outer Continental Shelf (OCS), three Shellproduction companies last week petitioned the Commission for aruling to declare they are exempt from the reporting requirementsunder Orders 639 and 639-A.

At issue in the petition is whether the Commission’s OuterContinental Shelf Lands Act (OCSLA) jurisdiction is limited solelyto pipeline- and producer-owned natural gas transportationfacilities and services in federal offshore waters, or whether italso applies to production facilities and services.

In Order 639, the Commission flexed its jurisdiction under theOCSLA for the first time, imposing a reporting burden on “gasservice providers” that operate non-exempt facilities involved in”moving gas on or across the OCS.” The reporting task mirrored thatwhich was already required of jurisdictional gas pipelinesoperating in the offshore under the Natural Gas Act.

By taking this action, FERC said it was trying to bring someconsistency to the often-conflicting regulatory regimes of the OCS.But Shell Deepwater Development Inc., Shell Deepwater ProductionInc and Shell Offshore Inc. argue they — as well as othersimilarly situated OCS producers — are being unfairly subjectedto the reporting requirements by virtue of being lumped into thecatch-all category of “gas service provider.”

The Shell Producers “steadfastly maintain” that their productionfacilities and services are beyond the scope of FERC’s OCSLAjurisdiction, which they contend applies only to “pipeline”facilities and “transportation” services [GP01-1]. Duke EnergyField Services, as well as a number of producers (including ShellOffshore Inc.), have mounted a challenge to the applicability ofthe Order 639 reporting requirements in the U.S. District Court forthe District of Columbia [Civil Action No. 00-2124].

This petition “puts squarely before the FERC the question ofwhether the FERC will regulate in an area [production] wherehistorically it has not, and should not,” the Shell Producers said.The Commission “will be breaking new ground” with its decision onthis, they believe.

In seeking a declaratory order, the Shell Producers specificallyasked FERC to declare they are not “gas service providers” becausethe services they provide don’t involve the “movement” of gas onbehalf of shippers on or across the OCS. If it should decideotherwise, the producers called on the Commission to conduct afacility-by-facility analysis to determine whether each of theirproduction-related facilities qualify for the feeder-line exemptionunder Order 639. FERC “should interpret the ‘feeder line’ exemptionexpansively in each case so as to exempt the entire productioncomplexes in which production-related activities occur.”

If that approach should fail, the Shell Producers asked FERC toconsider whether certain services provided by their productionfacilities would qualify for either the “single shipper” or “singleowner” exemption under Order 639. In the meantime, they arerefusing to submit reports on their production facilities andservices to the Commission until it addresses their request for adeclaratory order.

Shell Producers concede their production services “in theliteral sense, relate to the ‘movement’ of natural gas on or acrossthe OCS,” but they argued “these services do not involve ‘movement’of natural gas in the sense of transporting or shipping natural gason pipelines.” Instead, “they involve services related toproduction, collection and treatment of natural gas, throughseparation, dehydration and/or other processing facilities locatedon the production platforms as part of the production process.”

There is “much support for this interpretation” — thatproduction-related services and facilities on the OCS should beexcused from the FERC reporting requirements. But, in Orders 639and 639-A, the Commission “refused to make a generic finding tothis effect, preferring instead to examine the services andfacilities on a case-by-case basis.”

Under 639, which FERC reaffirmed in July, offshore “gas serviceproviders” are required to submit compliance filings each quarter,spelling out their conditions of service, along with either all oftheir current contracts or a statement of their operatingconditions, rates and how the rates were derived, as well as anychanges in their facilities, ownership or affiliations. Thesereporting requirements are at the core of Order 639. The firstquarterly filings were due Oct. 15.

The Shell Producers contend these reporting requirements willdampen investment in the OCS. “The potential disclosure ofsensitive and proprietary information for companies such as theShell Producers will have a chilling effect on offshoredevelopment.”

Susan Parker

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