With the spotlight recently cast upon it by the burgeoning Marcellus and other shale reserve developments, the oil and gas (“O&G”) industry has found itself increasingly the object of regulatory scrutiny. While the majority of commentary and new regulation has focused on the O&G industry’s fracking activities, the heightened regulatory attention has led to new levels of exposure in areas which the industry has traditionally not had extensive entanglement. Of particular import in this regard is the realm of Section 404 permitting of fill and dredge activities within waters of the United States under the federal Clean Water Act.

Most regulated industries are familiar with the 1972 amendments to the Federal Water Pollution Control Act and their subsequent revision in 1977, which became popularly known as the Clean Water Act (“CWA”). The stated purpose of the CWA is to “restore and maintain the chemical, physical, and biological integrity of the Nations' waters.” 33 U.S.C. § 1251 et seq.. Probably the best known CWA program is the National Pollutant Discharge Elimination System (NPDES) program regulating wastewater discharges pursuant to permits issued by the EPA Administrator (or states such as West Virginia with approved permit programs). 33 U.S.C. § 1342.

But the CWA also has a powerful regulatory authority in its Section 404, controlling the discharge or dredge and fill material into waters of the United States. 33 U.S.C. § 1344. Regulatory authority under Section 404 is exercised by both the U.S. Army Corps of Engineers (USACE) and EPA. The authority of USACE to regulate dredge and fill activities significantly predates the most recent (1977) amendments of the CWA, originating in the Rivers and Harbors Act of 1899. When a fill is required, the Corps “may issue permits . . . for the discharge of dredged or fill material into the navigable waters at specified disposal sites.” 33 U.S.C. § 1344(a).

Although the CWA describes the applicable waters for Section 404 permitting as “navigable,” the CWA defines that term to simply mean “waters of the United States.” 33 U.S.C. § 1362(7). The courts have construed waters of the United States to extend well beyond those traditionally considered navigable. While USACE has always embraced its role in managing the navigability of the nation’s waterways, it has been less enthused about its more general environmental regulatory role. USACE’s Section 404 permitting authority is also subject to substantial EPA oversight, including EPA “veto” authority over USACE issued permits. 33 U.S.C. § 1344 (b)(1) & (c). Recently, the EPA was dealt a significant blow to its self-arrogated veto authority. In Mingo-Logan Coal Company v. EPA, the D.C. federal district court ruled that EPA’s retroactive veto of an already issued individual Section 404 permit was not lawful. However, EPA likely may still “veto” proposed permits prior to USACE issuance. It is unclear how this development may play out in the context of NWP permitting, but it is certainly conceivable that EPA might seek to veto use of an NWP by objecting to a pre-construction notice.

Should any be inclined to dismiss the potential impact of Section 404, they would do well to recall that Section 404 based litigation changed the face of surface coal mining in central Appalachia between 1999 to the present, to the substantial detriment of the coal industry. Additionally, violations of Section 404 can potentially give rise to the same kinds of statutory CWA enforcement action as the more common NPDES based actions (Class I civil penalties are currently up to $37,500 per violation, per day). 33 U.S.C. § 1319 (as amended). While the scale of fill activities from O&G activities will no doubt be smaller (by orders of magnitude) than those found in surface coal mining, USACE has already made clear that Section 404 permitting for O&G operations is on the radar screen, as we reported in the November 2011 edition of IOGA News.

The O&G industry should be alert that any displacement of any perennial or intermittent stream bed with fill material is going to trigger Section 404 permitting requirements. Permitted status under Section 404 may be obtained either by claiming authorization under a Nationwide Permit (“NWP”) or applying for and receiving an individual Section 404 permit. NWPs are pre-approved permits of general applicability to carefully defined categories of activities. Some NWPs allow for activity to proceed without notification to USACE; others require preconstruction notification, after which USACE has 45 days to notify the project proponent whether the activity will be authorized by the NWP.

On February 21, 2012, USACE re-issued its NWPs, and issued two new NWPs. The NWPs became effective on March 19, 2012. 77 Fed. Reg. 10184 (February 21, 2012). NWPs remain in effect for five years.

During the review period leading up to the re-issuance of the NWPs, USACE received comments recommending that a new NWP be created to authorize fill activities for gas utility lines and associated infrastructure. On issuance of their final rule, USACE stated “[w]e believe that existing NWPs such as NWPs 12 [Utility Line Activities], 3 [Maintenance], and 39 [Commercial and Institutional Developments] are sufficient to provide general permit authorization for gas utility lines and associated infrastructure.” 77 Fed. Reg. at 10188.

Of most significance to the O&G industry are changes to NWP 39. The 2007 NWP 39 excluded O&G pad construction from coverage. USACE stated in the February 2012 re-issuance, however, that “[USACE] agrees that the construction of pads for oil and gas wells is a type of commercial development that would be appropriate for inclusion in this NWP [39]. District engineers may add conditions to NWP 39 authorizations to require the removal of these pads and restoration of the site once oil or gas extraction operations have ceased and the wells will no longer be used.” 77 Fed. Reg. at 10223.

The NWP 39 permit applies to “Discharges of dredged or fill material into non-tidal waters of the United States for the construction or expansion of commercial and institutional building foundations and building pads and attendant features that are necessary for the use and maintenance of the structures.” 77 Fed. Reg. at 10279. To qualify for this NWP, the fill “must not cause the loss of greater than ½ -acre of non-tidal waters of the United States, including the loss of no more than 300 linear feet of stream bed[.]” Id. However, for intermittent and ephemeral streams, the District Engineer may waive the 300-linear-foot limit if the District Engineer determines that the discharge will have only minimal adverse effects. Id.

“Attendant features” also covered by the permit “may include, but are not limited to, roads, parking lots... utility lines, [and] storm water management facilities....” Also, use of an NWP 39 does require that the permittee submit a pre-construction notification to USACE.

The applicability of the NWP 39 to O&G related construction should make keeping in compliance with CWA Section 404 relatively simple for the industry, so long as any proposed construction can be designed to meet the permit criteria (i.e., less than or equal to ½ acre of non-tidal waters or 300 linear feet of stream bed). Yet it must always be remembered that EPA retains oversight authority over USACE permitting. A particularly vulnerable spot could be EPA’s disagreeing with a District Engineer’s determination that a 300 linear foot waiver will cause only “minimal adverse effects.”

In another positive development for all entities who conduct construction activities, the recent Sackett v. EPA decision issued by the U.S. Supreme Court on March 21, 2012 provides a welcome new avenue to challenge EPA compliance orders without having to wait for a full scale enforcement action by EPA. Coupled with the previously mentioned Mingo Logan decision, at least two draconian arrows in EPA’s quiver have been significantly blunted by the federal courts. But vigilance should remain the watchword. The O&G industry can be certain that regional environmental advocacy groups will be reviewing USACE Section 404 permitting decisions routinely, searching for permitting decisions to challenge in order to delay and/or prevent O&G development activities.