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Shell Seeks to Nix OCS Reporting Requirements for Producers

Shell Seeks to Nix OCS Reporting Requirements for Producers

In the never-ending battle over the boundaries of FERC jurisdiction in the Outer Continental Shelf (OCS), three Shell production companies last week petitioned the Commission for a ruling to declare they are exempt from the reporting requirements under Orders 639 and 639-A.

At issue in the petition is whether the Commission's Outer Continental Shelf Lands Act (OCSLA) jurisdiction is limited solely to pipeline- and producer-owned natural gas transportation facilities and services in federal offshore waters, or whether it also applies to production facilities and services.

In Order 639, the Commission flexed its jurisdiction under the OCSLA for the first time, imposing a reporting burden on "gas service providers" that operate non-exempt facilities involved in "moving gas on or across the OCS." The reporting task mirrored that which was already required of jurisdictional gas pipelines operating in the offshore under the Natural Gas Act.

By taking this action, FERC said it was trying to bring some consistency to the often-conflicting regulatory regimes of the OCS. But Shell Deepwater Development Inc., Shell Deepwater Production Inc and Shell Offshore Inc. argue they --- as well as other similarly situated OCS producers --- are being unfairly subjected to the reporting requirements by virtue of being lumped into the catch-all category of "gas service provider."

The Shell Producers "steadfastly maintain" that their production facilities and services are beyond the scope of FERC's OCSLA jurisdiction, which they contend applies only to "pipeline" facilities and "transportation" services [GP01-1]. Duke Energy Field Services, as well as a number of producers (including Shell Offshore Inc.), have mounted a challenge to the applicability of the Order 639 reporting requirements in the U.S. District Court for the District of Columbia [Civil Action No. 00-2124].

This petition "puts squarely before the FERC the question of whether the FERC will regulate in an area [production] where historically it has not, and should not," the Shell Producers said. The Commission "will be breaking new ground" with its decision on this, they believe.

In seeking a declaratory order, the Shell Producers specifically asked FERC to declare they are not "gas service providers" because the services they provide don't involve the "movement" of gas on behalf of shippers on or across the OCS. If it should decide otherwise, the producers called on the Commission to conduct a facility-by-facility analysis to determine whether each of their production-related facilities qualify for the feeder-line exemption under Order 639. FERC "should interpret the 'feeder line' exemption expansively in each case so as to exempt the entire production complexes in which production-related activities occur."

If that approach should fail, the Shell Producers asked FERC to consider whether certain services provided by their production facilities would qualify for either the "single shipper" or "single owner" exemption under Order 639. In the meantime, they are refusing to submit reports on their production facilities and services to the Commission until it addresses their request for a declaratory order.

Shell Producers concede their production services "in the literal sense, relate to the 'movement' of natural gas on or across the OCS," but they argued "these services do not involve 'movement' of natural gas in the sense of transporting or shipping natural gas on pipelines." Instead, "they involve services related to production, collection and treatment of natural gas, through separation, dehydration and/or other processing facilities located on the production platforms as part of the production process."

There is "much support for this interpretation" --- that production-related services and facilities on the OCS should be excused from the FERC reporting requirements. But, in Orders 639 and 639-A, the Commission "refused to make a generic finding to this effect, preferring instead to examine the services and facilities on a case-by-case basis."

Under 639, which FERC reaffirmed in July, offshore "gas service providers" are required to submit compliance filings each quarter, spelling out their conditions of service, along with either all of their current contracts or a statement of their operating conditions, rates and how the rates were derived, as well as any changes in their facilities, ownership or affiliations. These reporting requirements are at the core of Order 639. The first quarterly filings were due Oct. 15.

The Shell Producers contend these reporting requirements will dampen investment in the OCS. "The potential disclosure of sensitive and proprietary information for companies such as the Shell Producers will have a chilling effect on offshore development."

Susan Parker

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