Noble Energy to pay an estimated $74 million to settle alleged Clean Air Act violations

Noble Energy Inc. (NYSE: NBL), the oil and natural-gas exploration and production company that two years ago pushed for stronger statewide emissions standards, has agreed to settle pollution violations alleged by the federal government for $13.5 million, which includes a civil penalty of $4.95 million. The company faces another $60 million in costs to upgrade its systems, according to the Environmental Protection Agency.

The settlement resolves alleged Clean Air Act violations from the Houston-based company’s oil and gas exploration activities in Northern Colorado, the EPA, Department of Justice and state of Colorado said in a statement Wednesday. Noble failed to adequately design, operate and maintain vapor control systems on 3,400 groups of storage tanks, leading to emissions of volatile organic compounds. Those emissions contribute to smog and ground-level ozone, which can irritate lungs and worsen respiratory diseases.

In 2012, state and federal inspectors detected emissions at select Noble facilities in the region. The state cited the company with violations related to excess emissions of volatile organic compounds due to over pressurization and venting from storage tanks.

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In 2013, Noble Energy joined other large oil and gas producers in the region, Anadarko Petroleum Corp. (NYSE: APC) and Encana Corp. (NYSE: ECA) (TSX: ECA), to support state emissions standards targeting methane pollution from oil and gas development.

“We’ve got to get our emissions down,” former CEO Chuck Davidson said during Colorado State University’s natural gas symposium in 2013.

Dr. Larry Wolk, executive director and chief medical officer at the Colorado Department of Public Health and Environment, said in a statement that violations came before changes to Colorado’s air regulations.

“The new rules include provisions specifically designed to prevent venting of volatile organic compounds from storage tanks,” Wolk said.

“Noble Energy was instrumental in the agreement reached last year between the state and industry and environmental representatives which strengthened the state’s air quality regulations,” he added. “Through both our existing and new regulations, Colorado has some of the most stringent oil and gas requirements in the country.”

Will Allison, director of the state Air Pollution Control Division, said that inspections on Noble Energy’s facilities ultimately helped inform the rulemaking on air quality standards in 2013.

“Those inspections in 2012 and 2013 have not been unique to one company,” he said.

State inspectors used infrared cameras surveyed storage tanks further in the summer of 2013 and realized that emissions from tank batteries required further scrutiny.

“That really helped inform part of the (state methane standards) proposal, which Noble and other operators ultimately supported,” he said.

As part of the settlement, EPA estimates Noble will spend $60 million on system upgrades, monitoring and inspections to reduce pollution. Noble Energy said it does not know yet how much it will spend on improvements.

The company will spend $8.5 million on environmental projects. It will also pay a $4.95 million civil penalty.

“By working together with the federal government and the State of Colorado to reduce emissions we are doing the right thing,” Gary Willingham, Noble Energy executive vice president of operations, said in a separate statement. “We’re implementing a serious action plan through which we will evaluate tank batteries throughout our DJ Basin operations, remove the tank batteries that should be removed, improve others and implement enhanced environmental strategies.”

Under the settlement, Noble will make changes to its vapor control systems to capture emissions. The company will use an infrared camera to inspect its systems to confirm that it is controlling emissions.

A third-party will audit the company’s activities, and Noble will complete reports summarizing its engineering evaluations and modifications online. The company also will install monitors at storage tanks to detect pressure increases that may indicate possible escaping emissions.

EPA estimates that changes to the company’s vapor control systems will reduce volatile organic compound emissions by at least 2,400 tons per year.

One of Noble Energy’s environmental projects will involve the company providing financial incentives to residents in the ozone nonattainment area to replace or retrofit inefficient, higher-polluting wood-burning or coal appliances with cleaner burning, more efficient heating appliances. The project will reduce pollution, including 450 tons of carbon monoxide tons annually and 130 tons per year of volatile organic compounds.

Colorado’s Front Range, including Weld County, where Noble Energy drills oil and gas wells, has violated federal ozone standards since 2007.

Noble Energy shares rose less than 1 point to close at $51.18 on Wednesday.

This story has been updated to clarify estimates of how much Noble Energy may spend on system upgrades.