Dry Seals/Route to Process or Control
                                     -$37
                                      Gas

Transmission Compressor Stations
                     Dry Seals/Route to Process or Control
                                 Not in Final
                                      Gas
Pneumatic Controllers -

 Oil and Gas Production
                          Low Bleed/Route to Process
                                     -$695
                                  Oil and Gas

 Natural Gas Transmission and Storage
                          Low Bleed/Route to Process
                                 Not in Final
                                      Gas
Storage Vessels

High Throughput
                                  95% control
                                     $197
                                  Oil and Gas

Low Throughput
                                  95% control
                                 Not in Final
                                     None

Table 7-2	Summary of Additional Per Completion/Recompletion Costs (2008$) for Environmental Controls Entered into NEMS

                           Emissions Sources/Points
                               Emissions Control
                         Per Completion Costs (2008$)
                           Wells Applied To in NEMS
Well Completions

Hydraulically Fractured Gas Wells
                                      REC
                                     -$828
                         New Tight Sand/ Shale Gas/CBM

Conventional Gas Wells
                                  Combustion
                                 Not in Final
                                     None

Oil Wells
                                  Combustion
                                 Not in Final
                                     None
Well Recompletions

Hydraulically Fractured Gas Wells (post-NSPS wells)
                                      REC
                                    -$1,036
                Existing Tight Sand/ Shale Gas /Coalbed Methane

Hydraulically Fractured Gas Wells (existing wells)
                                      REC
                                    -$1,036
                Existing Tight Sand/ Shale Gas /Coalbed Methane

Conventional Gas Wells
                                  Combustion
                                 Not in Final
                                     None

 Oil Wells
                                  Combustion
                                 Not in Final
                                     None

Adding Averted Methane Emissions into Natural Gas Production
	A significant benefit of controlling VOC emissions from oil and natural gas production is that methane that would otherwise be lost to the atmosphere can be directed into the natural gas production stream.  We chose to model methane capture in NEMS as an increase in natural gas industry productivity, ensuring that, within the model, natural gas reservoirs are not decremented by production gains from methane capture.  We add estimates of the quantities of methane captured (or otherwise not vented or combusted) to the base quantities that the OGSM model supplies to the NGTDM model.  We subdivide the estimates of commercially valuable averted emissions by region and well type in order to more accurately portray the economics of implementing the environmental technology.  Adding the averted methane emissions in this manner has the effect of moving the natural gas supply curve to the right an increment consistent with the technically achievable emissions transferred into the production stream as a result of the final NSPS.
	With the exception of recompletions on existing wells, we enter the increased natural gas recovery into NEMS on a per-well basis for new wells, following an estimation procedure similar to that of entering compliance costs into NEMS on a per well basis for new wells.  For the final NSPS, we estimate that natural gas recovery is 5,065 Mcf per well.  We make a simplifying assumption that natural gas recovery accruing to new wells accrues to new wells in shale gas, tight sands, and CBM fields.  We make these assumptions because new wells in these fields are more likely to satisfy criteria such that RECs are required, which contributed that large majority of potential natural gas recovery.  Note that these per well natural gas recovery is lower than the per well estimate when RECs are implemented.  The estimate is lower because we account for emissions that are combusted, RECs that are implemented absent Federal regulation, as well as the likelihood that natural gas is used during processing and transmission or reinjected.
	We treat the potential natural gas recovery associated with recompletions of existing wells differently in that we estimated the natural gas recovery by natural gas resource type based on a combination of the engineering analysis and production patterns from the 2011 Annual Energy Outlook.  We estimate that additional natural gas product recovered by recompleting existing wells to be about 6.9 bcf, with 2.8 bcf accruing to shale gas, 3.4 bcf accruing to tight sands, and 0.8 bcf accruing to CBM, respectively (total may be different due to independent rounding).  This quantity is distributed within the NGTDM to reflect regional production by resource type.
Fixing Canadian Drilling Costs to Baseline Path
Domestic drilling costs serve as a proxy for Canadian drilling costs in the Canadian oil and natural gas sub-model within the NGTDM.  This implies that, without additional modification, additional costs imposed by a U.S. regulation will also impact drilling decisions in Canada.   Changes in international oil and gas trade are important in the analysis, as a large majority of natural gas imported into the U.S. originates in Canada.  To avoid this problem, we fixed Canadian drilling costs using U.S. drilling costs from the baseline scenario.  This solution enables a more accurate analysis of U.S.-Canada energy trade, as increased drilling costs in the U.S. as a result of environmental regulation serve to increase Canada's comparative advantage.

Energy System Impacts
As mentioned earlier, we estimate impacts to drilling activity, reserves, price and quantity changes in the production and consumption of crude oil and natural gas, and changes in international trade of crude oil and natural gas, as well as whether and to what extent the NSPS might alter the mix of fuels consumed at a national level.  In each of these estimates, we present estimates for the baseline year of 2015 and results for the NSPS.  For context, we provide estimates of production activities in 2011.
Impacts on Drilling Activities
      Because the potential costs of the NSPS are concentrated in production activities, we first report estimates of impacts on crude oil and natural gas drilling activities and production and price changes at the wellhead.  Table 7-3 presents estimates of successful wells drilled in the U.S. in 2015, the analysis year.
Table 7-3	Successful Oil and Gas Wells Drilled, NSPS

                             Future Scenario, 2015

                                     2011
                                   Baseline
                               Under Final NSPS

Successful Wells Drilled

Natural Gas
                                    16,373
                                    19,097
                                    19,139

Crude Oil
                                    10,352
                                    11,025
                                    11,025

Total
                                    26,725
                                    30,122
                                    30,164

% Change in Successful Wells Drilled from Baseline

Natural Gas

                                     0.22%

Crude Oil

                                     0.00%

Total

                                     0.14%

We estimate that the number of successful natural gas wells drilled increases slightly for the final NSPS, while the number of successful crude oil wells drilled does not change.  The number of successful natural gas wells drilled is estimated to increase about 0.22%.  Table 7-4 presents the forecast of successful wells by well type, for onshore drilling in the lower 48 states.  The results show that conventional well drilling is unaffected by the NSPS, as reduced emission completion and completion combustion requirements are directed not toward wells in conventional reserves but toward wells that are hydraulically fractured, the wells in so-called unconventional reserves.  The number of successful wells drilled increase in tight sands, shale gas, as well as coalbed methane.
Table 7-4	Successful Wells Drilled by Well Type (Onshore, Lower 48 States), NSPS

                             Future Scenario, 2015

                                     2011
                                   Baseline
                               Under Final NSPS

Successful Wells Drilled

Conventional Gas Wells
                                     7,267
                                     7,607
                                     7,607

Tight Sands
                                     2,441
                                     2,772
                                     2,788

Shale Gas
                                     5,007
                                     7,022
                                     7,030

Coalbed Methane
                                     1,593
                                     1,609
                                     1,627

Total
                                    16,308
                                    19,010
                                    19,052

% Change in Successful Wells Drilled from Baseline

Conventional Gas Wells

                                     0.00%

Tight Sands

                                     0.58%

Shale Gas

                                     0.11%

Coalbed Methane

                                     1.12%

Total

                                     0.22%

Well drilling in tight sands is estimated to increase slightly, about 0.58 percent.  Drilling in shale gas is forecast to increase from the baseline by 0.11 percent.  Wells in CBM reserves are also estimated to increase from the baseline by 1.12 percent.
Impacts on Production, Prices, and Consumption
Table 7-5 shows estimates of the changes in the domestic production of natural gas and crude oil under the NSPS, as of 2015.  Domestic crude oil production is not forecast to change under the NSPS, again because impacts on crude oil drilling of the NSPS are expected to be negligible.

Table 7-5	Annual Domestic Natural Gas and Crude Oil Production, NSPS

                             Future Scenario, 2015

                                     2011
                                   Baseline
                               Under Final NSPS
Domestic Production

Natural Gas (trillion cubic feet)
                                     21.05
                                     22.43
                                     22.49

Crude Oil (million barrels/day)
                                     5.46
                                     5.81
                                     5.81

Natural Gas

                                     0.27%

Crude Oil

                                     0.00%

Natural gas production, on the other hand, increases from the baseline under the NSPS.  A main driver for this increase is the additional natural gas recovery engendered by the control requirements. Another driver for the increases under the NSPS is the increase in natural gas well drilling.  For the NSPS, the NEMS analysis shown in Table 7-5 estimates a 60 bcf increase in domestic natural gas production.  This amount is less than the amount estimated in the engineering analysis to be captured by emissions controls implemented as a result of the NSPS (approximately 82 bcf).  This difference is because NEMS models the adjustment of energy markets to the now relatively more efficient natural gas production sector.  At the new natural gas supply and demand equilibrium in 2015, the modeling estimates 60 bcf more gas is produced at a relatively lower wellhead price (which will be presented momentarily).  However, at the new equilibrium, producers implementing emissions controls still capture and sell approximately 82 bcf of natural gas.  For example, as shown in Table 7-4, about 11,400 new unconventional natural gas wells are completed under the final NSPS; using assumptions from the engineering cost analysis about RECs required under State regulations and exploratory wells and relatively low pressure wells exempted from REC requirements, about 8,750 NSPS-required RECs would be performed on new natural gas well completions, according to the NEMS analysis, not including the recompletions of existing wells.  This recovered natural gas substitutes for natural gas that would be produced from the ground absent the rule.  In effect, then, about 20 bcf of natural gas that would have been extracted and emitted into the atmosphere is left in the formation for future extraction.
As we showed for natural gas drilling, Table 7-6 shows natural gas production from onshore wells in the lower 48 states by type of well, predicted for 2015, the analysis year.  Production from all types of wells is estimated to increase under the NSPS, with CBM increasing the most at 0.89 percent.
Table 7-6	Natural Gas Production by Well Type (Onshore, Lower 48 States), NSPS

                             Future Scenario, 2015

                                     2011
                                   Baseline
                               Under Final NSPS
Natural Gas Production by Well Type (trillion cubic feet)

Conventional Gas Wells
                                     4.06
                                     3.74
                                     3.75

Tight Sands
                                     5.96
                                     5.89
                                     5.93

Shale Gas
                                     5.21
                                     7.20
                                     7.22

Coalbed Methane
                                     1.72
                                     1.67
                                     1.68

Total
                                     16.95
                                     18.51
                                     18.58

% Change in Natural Gas Production by Well Type from Baseline

Conventional Gas Wells

                                     0.14%

Tight Sands

                                     0.54%

Shale Gas

                                     0.24%

Coalbed Methane

                                     0.89%

Total

                                     0.37%
Note: Totals may not sum due to independent rounding.
Table 7-7 presents estimates of national average wellhead natural gas and crude oil prices for onshore production in the lower 48 states, estimated for 2015, the year of analysis.  Wellhead natural gas and crude oil prices are forecast to decrease under the NSPS.  The decrease in wellhead natural gas price form the baseline is attributable largely to the increased productivity of natural gas wells as a result of capturing a portion of completion and recompletion emissions.

Table 7-7	Lower 48 Average Natural Gas and Crude Oil Wellhead Price, NSPS

                             Future Scenario, 2015

                                     2011
                                   Baseline
                               Under Final NSPS
Lower 48 Average Wellhead Price

Natural Gas (2008$ per Mcf)
                                     4.07
                                     4.22
                                     4.17

Crude Oil (2008$ per barrel)
                                     83.65
                                     94.60
                                     94.59

% Change in Lower 48 Average Wellhead Price from Baseline

Natural Gas

                                    -1.18%

Crude Oil

                                    -0.01%

Table 7-8 presents estimates of the price of natural gas to final consumers in 2008 dollars per million BTU.  The production price decreases estimated as a result of the final NSPS are largely passed on to consumers but distributed unequally across consuming sectors.  Electric power sector consumers of natural gas are estimated to receive the largest price decrease while the transportation and residential sectors are forecast to receive the smallest price decreases.

Table 7-8	Delivered Natural Gas Prices by Sector (2008$ per million BTU), 2015, NSPS

                             Future Scenario, 2015

                                     2011
                                   Baseline
                               Under Final NSPS
Delivered Prices (2008$ per million BTU)

Residential
                                     10.52
                                     10.35
                                     10.30

Commercial
                                     9.26
                                     8.56
                                     8.51

Industrial
                                     4.97
                                     5.08
                                     5.04

Electric Power
                                     4.81
                                     4.77
                                     4.73

Transportation
                                     12.30
                                     12.24
                                     12.19

Average
                                     6.76
                                     6.59
                                     6.55

% Change in Delivered Prices from Baseline

Residential

                                    -0.48%

Commercial

                                    -0.58%

Industrial

                                    -0.59%

Electric Power

                                    -0.84%

Transportation

                                    -0.41%

Average

                                    -0.61%

Final consumption of natural gas is also estimated to increase in 2015 from the baseline under the NSPS, as is shown on Table 7-9.  Like delivered price, the consumption shifts are distributed differently across sectors.

Table 7-9	Natural Gas Consumption by Sector, NSPS

                             Future Scenario, 2015

                                     2011
                                   Baseline
                               Under Final NSPS
Consumption (trillion cubic feet)

Residential
                                     4.76
                                     4.81
                                     4.82

Commercial
                                     3.22
                                     3.38
                                     3.38

Industrial
                                     6.95
                                     8.05
                                     8.06

Electric Power
                                     7.00
                                     6.98
                                     7.00

Transportation
                                     0.03
                                     0.04
                                     0.04

Pipeline Fuel
                                     0.64
                                     0.65
                                     0.65

Lease and Plant Fuel
                                     1.27
                                     1.20
                                     1.21

Total
                                     23.86
                                     25.11
                                     25.16

% Change in Consumption from Baseline

Residential

                                     0.21%

Commercial

                                     0.00%

Industrial

                                     0.12%

Electric Power

                                     0.29%

Transportation

                                     0.00%

Pipeline Fuel

                                     0.00%

Lease and Plant Fuel

                                     0.83%

Total

                                     0.20%
Note: Totals may not sum due to independent rounding.

Impacts on Imports and National Fuel Mix
The NEMS modeling estimates that the impact from the NSPS is not sufficiently large to affect the trade balance of natural gas.  As shown in Table 7-10, estimates of crude oil imports do not vary from the baseline in 2015 under the NSPS.

Table 7-10	Net Imports of Natural Gas and Crude Oil, NSPS

                             Future Scenario, 2015

                                     2011
                                   Baseline
                               Under Final NSPS
Net Imports

Natural Gas (trillion cubic feet)
                                     2.75
                                     2.69
                                     2.68

Crude Oil (million barrels/day)
                                     9.13
                                     8.70
                                     8.70

% Change in Net Imports

Natural Gas

                                    -0.37%

Crude Oil

                                     0.00%

Meanwhile, net imports of natural gas are estimated to decrease about 10 bcf (0.37 percent) under the NSPS, as the increased production substitutes for imported natural gas.
Table 7-11 evaluates estimates of energy consumption by energy type at the national level for 2015, the year of analysis.  The NSPS is estimated to have small effects at the national level.  We estimate an increase in 0.03 quadrillion BTU in 2015, a 0.03 percent increase.  The percent contribution of natural gas is projected to increase, while the percent contribution of liquid fuels and coal is expected to decrease under the NSPS.

Table 7-11	Total Energy Consumption by Energy Type (Quadrillion BTU), NSPS

                             Future Scenario, 2015

                                     2011
                                   Baseline
                               Under Final NSPS
Consumption (quadrillion BTU)

Liquid Fuels
                                     37.41
                                     39.10
                                     39.09

Natural Gas
                                     24.49
                                     25.77
                                     25.82

Coal
                                     20.42
                                     19.73
                                     19.71

Nuclear Power
                                     8.40
                                     8.77
                                     8.77

Hydropower
                                     2.58
                                     2.92
                                     2.92

Biomass
                                     2.98
                                     3.27
                                     3.27

Other Renewable Energy
                                     1.72
                                     2.14
                                     2.14

Other
                                     0.30
                                     0.31
                                     0.31

Total
                                     98.29
                                    102.02
                                    102.05

% Change in Consumption from Baseline

Liquid Fuels

                                    -0.03%

Natural Gas

                                     0.19%

Coal

                                    -0.10%

Nuclear Power

                                     0.00%

Hydropower

                                     0.00%

Biomass

                                     0.00%

Other Renewable Energy

                                     0.00%

Other

                                     0.00%

Total

                                     0.03%
Note: Totals may not sum due to independent rounding.

With the national profile of energy consumption estimated to change slightly under the NSPS in 2015, the year of analysis, it is important to examine whether aggregate energy-related CO2-equivalent greenhouse gas (GHG) emissions also shift.  A more detailed discussion of changes in CO2-equivalent GHG emissions from a baseline is presented within the benefits analysis in Section 4.  Here, we present a single NEMS-based table showing estimated changes in energy-related "consumer-side" GHG emissions.  We use the terms "consumer-side" emissions to distinguish emissions from the consumption of fuel from emissions specifically associated with the extraction, processing, and transportation of fuels in the oil and natural gas sector under examination in this RIA.  We term the emissions associated with extraction, processing, and transportation of fuels "producer-side" emissions.

Table 7-12	Modeled Change in Energy-related "Consumer-Side" CO2-equivalent GHG Emissions

                             Future Scenario, 2015

                                     2011
                                   Baseline
                               Under Final NSPS
Energy-related CO2-equivalent GHG Emissions (million metric tons CO2-equivalent)

Petroleum
                                   2,359.59
                                   2,433.60
                                   2,433.16

Natural Gas
                                   1,283.78
                                   1,352.20
                                   1,354.69

Coal
                                   1,946.02
                                   1,882.08
                                   1,880.57

Other
                                     11.99
                                     11.99
                                     11.99

Total
                                   5,601.39
                                   5,679.87
                                   5,680.41

% Change in Energy-related CO2-equivalent GHG Emissions from Baseline

Petroleum

                                    -0.02%

Natural Gas

                                     0.18%

Coal

                                    -0.08%

Other

                                     0.00%

Total

                                     0.01%
Note: Excludes "producer-side" emissions and emissions reductions estimated to result from NSPS. Totals may not sum due to independent rounding.

As is shown in Table 7-12, the final NSPS is predicted to slightly increase consumer-side aggregate energy-related CO2-equivalent GHG emissions by about 540,000 metric tons (0.01 percent), mainly because consumer-side emissions from natural gas combustion increase slightly more than they are offset by reductions in petroleum and coal consumption.
Employment Impact Analysis
While a standalone analysis of employment impacts is not included in a standard cost-benefit analysis, such an analysis is of particular concern in the current economic climate of sustained high unemployment. Executive Order 13563, states, "Our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation" (emphasis added).  Therefore, we seek to inform the discussion of labor demand and job impacts by providing an estimate of the employment impacts of the regulations using labor requirements for the installation, operation, and maintenance of control requirements, as well as reporting and recordkeeping requirements.  Unlike several recent RIAs, however, we do not provide employment impacts estimates based on the study by Morgenstern et al. (2002); we discuss this decision after presenting estimates of the labor requirements associated with reporting and recordkeeping and the installation, operation, and maintenance of control requirements.
Employment Impacts from Pollution Control Requirements
Regulations set in motion new orders for pollution control equipment and services. New categories of employment have been created in the process of implementing regulations to make our air safer to breathe. When a new regulation is promulgated, a response of industry is to order pollution control equipment and services in order to comply with the regulation when it becomes effective.  Revenue and employment in the environmental technology industry have grown steadily between 2000 and 2008, reaching an industry total of approximately $300 billion in revenues and 1.7 million employees in 2008.  While these revenues and employment figures represent gains for the environmental technologies industry, they are costs to the regulated industries required to install the equipment.  Moreover, it is not clear the 1.7 million employees in 2008 represent new employment as opposed to workers being shifted from the production of goods and services to environmental compliance activities.
Once the equipment is installed, regulated firms hire workers to operate and maintain the pollution control equipment  -  much like they hire workers to produce more output. Morgenstern et al. (2002) examined how regulated industries respond to regulation.  They found that environmental regulations can have three distinct effects; the demand effect, the cost effect, and the factor substitution effect ...The authors found that, on average for the industries they studied, employment increases in regulated firms. Of course, these firms may also reassign existing employees to perform these activities.
Environmental regulations support employment in many basic industries. In addition to the increase in employment in the environmental protection industry (via increased orders for pollution control equipment), environmental regulations also support employment in industries that provide intermediate goods to the environmental protection industry.  The equipment manufacturers, in turn, order steel, tanks, vessels, blowers, pumps, and chemicals to manufacture and install the equipment.  Bezdek et al. (2008) found that investments in environmental protection industries create jobs and displace jobs, but the net effect on employment is positive.
The focus of this part of the analysis is on labor requirements related to the compliance actions of the affected entities within the affected sector.  We do not estimate any potential changes in labor outside of the oil and natural gas sector.  This analysis estimates the employment impacts due to the installation, operation, and maintenance of control equipment, as well as employment associated with new reporting and recordkeeping requirements.
It is important to highlight that unlike the typical case where to reduce a bad output (i.e., emissions) a firm often has to reduce production of the good output, many of the emission controls required by the final NSPS will simultaneously increase production of the good output and reduce production of bad outputs. That is, these controls jointly produce environmental improvements and increase output in the regulated sector.  New labor associated with implementing these controls to comply with the new regulations can also be viewed as additional labor increasing output while reducing undesirable emissions. To the extent, however, that these rules require unprofitable investments for some operations, there is the possibility that they may cause fewer completions to be undertaken, and less gas production, thus creating downward pressure on labor demand, both in the regulated sector and on those sectors using natural gas as an input. This RIA excludes these potential adverse effects on the labor market.
No estimates of the labor used to manufacture or assemble pollution control equipment or to supply the materials for manufacture or assembly are included because U.S. EPA does not currently have this information.  The employment analysis uses a bottom-up engineering-based methodology to estimate employment impacts.  The engineering cost analysis summarized in this RIA includes estimates of the labor requirements associated with implementing the regulations.  Each of these labor changes may either be required as part of an initial effort to comply with the new regulation or required as a continuous or annual effort to maintain compliance.  We estimate up-front and continual, annual labor requirements by estimating hours of labor required and converting this number to full-time equivalents (FTEs) by dividing by 2,080 (40 hours per week multiplied by 52 weeks).  We note that this type of FTE estimate cannot be used to make assumptions about the specific number of people involved or whether new jobs are created for new employees.
	In other employment analyses U.S. EPA distinguished between employment changes within the regulated industry and those changes outside the regulated industry (e.g. a contractor from outside the regulated facility is employed to install a control device).  For this regulation however, the structure of the industry makes this difficult.  The mix of in-house versus contracting services used by firms is very case-specific in the oil and natural gas industry.  For example, sometimes the owner of the well, processing plant, or transmission pipelines uses in - house employees extensively in daily operations, while in other cases the owner relies on outside contractors for many of these services.  For this reason, we make no distinction in the quantitative estimates between labor changes within and outside of the regulated sector.
	The results of this employment estimate are presented in Table 7-13 for the final NSPS and in Table 7-14 for the final NESHAP Amendments.  The tables breaks down the installation, operation, and maintenance estimates by type of pollution control evaluated in the RIA and present both the estimated hours required and the conversion of this estimate to FTE.  For both the final NSPS and NESHAP Amendments, reporting and recordkeeping requirements were estimated for the entire rules rather than by anticipated control requirements; the reporting and recordkeeping estimates are consistent with estimates EPA submitted as part of its Information Collection Request (ICR).
      The up-front labor requirement is estimated at 50 FTEs for the final NSPS and about 120 FTEs for the final NESHAP Amendments.  These up-front FTE labor requirements can be viewed as short-term labor requirements required for affected entities to comply with the new regulation.  Ongoing requirements are estimated at about 1,100 FTEs for the final NSPS and about 94 FTEs for the final NESHAP Amendments.  These ongoing FTE labor requirements can be viewed as sustained labor requirements required for affected entities to continuously comply with the new regulation.
      Two main categories contain the majority of the labor requirements for the final rules: implementing reduced emissions completions (RECs) and reporting and recordkeeping requirements for the final NSPS.  Also, note that pneumatic controllers have no up-front or continuing labor requirements.  While the controls do require labor for installation, operation, and maintenance, the required labor is less than that of the controllers that would be used absent the regulation.  In this instance, we assume the incremental labor requirements are zero.
      Implementing RECs are estimated to require about 1,000 FTE, about 88 percent of the total continuing labor requirements for the final NSPS.  We denote REC-related requirements as continuing, or annual, as the REC requirements will in fact recur annually, albeit at different wells each year.  The REC requirements are associated with certain new well completions or existing well recompletions, which while individual completions occur over a short period of time (days to a few weeks), new wells and other existing wells are completed or recompleted annually.  Because of these reasons, we assume the REC-related labor requirements are annual.
Employment Impacts Primarily on the Regulated Industry
In previous RIAs, we transferred parameters from a study by Morgenstern et al. (2002) to estimate employment effects of new regulations.  (See, for example, the Regulatory Impact Analysis for the finalized Mercury and Air Toxics Standards, promulgated on December 16, 2011).  The fundamental insight of Morgenstern, et al. is that environmental regulations can be understood as requiring regulated firms to add a new output (environmental quality) to their product mixes. Although legally compelled to satisfy this new demand, regulated firms have to finance this additional production with the proceeds of sales of their other (market) products. Satisfying this new demand requires additional inputs, including labor, and may alter the relative proportions of labor and capital used by regulated firms in their production processes.
Using plant-level Census information between the years 1979 and 1991, Morgenstern et al. estimate the size of each effect for four polluting and regulated industries (petroleum refining, plastic material, pulp and paper, and steel). On average across the four industries, each additional $1 million (1987$) spending on pollution abatement results in a (statistically insignificant) net increase of 1.55 (+/- 2.24) jobs. As a result, the authors conclude that increases in pollution abatement expenditures did not necessarily cause economically significant employment changes in those industries at that time.
      For this version of RIA for the final NSPS and NESHAP Amendments, however, we chose not to quantitatively estimate employment impacts using Morgenstern et al. because of reasons specific to the oil and natural gas industry and final rules.  We believe the transfer of parameter estimates from the Morgenstern et al. study to the final NSPS and NESHAP Amendments is beyond the range of the study for two reasons.
Table 7-13	Labor-based Employment Estimates for Reporting and Recordkeeping and Installing, Operating, and Maintaining Control Equipment Requirements, NSPS, 2015
Source/Emissions Point
Emissions Control
                        Projected No. of Affected Units
                   Per Unit One-time Labor Estimate (hours)
                    Per Unit Annual Labor Estimate (hours)
                     Total One-Time Labor Estimate (hours)
                      Total Annual Labor Estimate (hours)
                         One-time Full-Time Equivalent
                          Annual Full-Time Equivalent
Well Completions and Recompletions

New Hydraulically Fractured Gas Wells
Reduced Emissions Completion (REC)
                                                                          8,382
                                                                              0
                                                                            218
                                                                              0
                                                                      1,823,282
                                                                            0.0
                                                                          876.6

Existing Hydraulically Fractured Gas Wells
REC
                                                                          1,085
                                                                              0
                                                                            218
                                                                              0
                                                                        235,901
                                                                            0.0
                                                                          113.4

Hydraulically Fractured Gas Wells
Combustion
                                                                          1,498
                                                                              0
                                                                             22
                                                                              0
                                                                         32,327
                                                                            0.0
                                                                           15.5
Equipment Leaks

Processing Plants
NSPS Subpart VVA
                                                                             29
                                                                            587
                                                                            887
                                                                         17,023
                                                                         25,723
                                                                            8.2
                                                                           12.4
Reciprocating Compressors

Gathering/Boosting Stations
Annual Monitoring/ Maintenance (AMM)
                                                                            210
                                                                              1
                                                                              1
                                                                            210
                                                                            210
                                                                            0.1
                                                                            0.1

Processing Plants
AMM
                                                                            209
                                                                              1
                                                                              1
                                                                            209
                                                                            209
                                                                            0.1
                                                                            0.1
Centrifigal Compressors

Processing Plants
Dry Seals/Route to Process or Control
                                                                             13
                                                                            355
                                                                              0
                                                                          4,615
                                                                              0
                                                                            2.2
                                                                            0.0
Pneumatic Controllers

Oil and Gas Production
Low Bleed/Route to Process
                                                                         13,632
                                                                              0
                                                                              0
                                                                              0
                                                                              0
                                                                            0.0
                                                                            0.0
Storage Vessels

High Throughput
95% control
                                                                            304
                                                                            271
                                                                            190
                                                                         82,279
                                                                         57,582
                                                                           39.6
                                                                           27.7
Reporting and Recordkeeping for Complete NSPS
                                                                            All
                                                                            N/A
                                                                            N/A
                                                                              0
                                                                        229,810
                                                                            0.0
                                                                          102.5
TOTAL

                                                                            N/A
                                                                            N/A
                                                                            N/A
                                                                        104,336
                                                                      2,405,045
                                                                           50.2
                                                                        1,148.3
Note: Full-time equivalents (FTE) are estimated by first multiplying the projected number of affected units by the per unit labor requirements and then multiplying by 2,080 (40 hours multiplied by 52 weeks).  Totals may not sum due to independent rounding.

Table 7-14	Labor-based Employment Estimates for Reporting and Recordkeeping and Installing, Operating, and Maintaining Control Equipment Requirements, Final NESHAP Amendments, 2015
Source/Emissions Point
Emissions Control
                        Projected No. of Affected Units
                   Per Unit One-time Labor Estimate (hours)
                    Per Unit Annual Labor Estimate (hours)
                     Total One-Time Labor Estimate (hours)
                      Total Annual Labor Estimate (hours)
                         One-time Full-Time Equivalent
                          Annual Full-Time Equivalent
Small Glycol Dehydrators

Production
Combustion devices, recovery devices, process modifications
                                                                             74
                                                                             27
                                                                            285
                                                                          2,000
                                                                         21,120
                                                                            1.0
                                                                           10.2

Transmission
Combustion devices, recovery devices, process modifications
                                                                              7
                                                                             27
                                                                            285
                                                                            189
                                                                          1,998
                                                                            0.1
                                                                            1.0
Storage Vessels

Production
Combustion devices, recovery devices
                                                                            674
                                                                            311
                                                                            198
                                                                        209,753
                                                                        133,231
                                                                          100.8
                                                                           64.1
Reporting and Recordkeeping for Complete NESHAP Amendments
                                                                            N/A
                                                                            N/A
                                                                            N/A
                                                                         36,462
                                                                         39,923
                                                                           17.5
                                                                           19.2
TOTAL

                                                                            808
                                                                            N/A
                                                                            N/A
                                                                        248,404
                                                                        196,272
                                                                          119.4
                                                                           94.4
Note: Full-time equivalents (FTE) are estimated by first multiplying the projected number of affected units by the per unit labor requirements and then multiplying by 2,080 (40 hours multiplied by 52 weeks). Totals may not sum due to independent rounding.
First, the possibility that the revenues producers are estimated to receive from additional natural gas recovery as a result of the final NSPS might offset the costs of complying with the rule presents challenges to estimating employment effects (see Section <IP_ADDRESS> of the RIA for a detailed discussion of the natural gas recovery).  The Morgenstern et al. paper, for example, is intended to analyze the impact of environmental compliance expenditures on industry employment levels, and it may not be appropriate to draw on their demand and net effects when compliance costs are expected to be negative.
Second, the final regulations primarily affect the natural gas production, processing, and transmission segments of the industry.  While the natural gas processing segment of the oil and natural gas industry is similar to petroleum refining, which is examined in Morgenstern et al., the production side of the oil and natural gas (drilling and extraction, primarily) and natural gas pipeline transmission are not similar to petroleum refining.  Because of the likelihood of negative compliance costs for the final NSPS and the segments of the oil and natural gas industry affected by the rules are not examined by Morgenstern et al., we decided not to use the parameters estimated by Morgenstern et al. to estimate within-industry employment effects for the final oil and natural gas NESHAP Amendments and NSPS.
That said, the likelihood of additional natural gas recovery is an important component of the market response to the rule, as it is expected that this additional natural gas recovery will reduce the price of natural gas.  Because of the estimated fall in prices in the natural gas sector due to the final NSPS, prices in other sectors that consume natural gas are likely drop slightly due to the decrease in energy prices.  This small production increase and price decrease may have a slight stimulative effect on employment in industries that consume natural gas.
Small Business Impacts Analysis
     The Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small governmental jurisdictions, and small not-for-profit enterprises.
After considering the economic impact of the final rules on small entities for both the NESHAP and NSPS, the analysis indicates that these rules will not have a significant economic impact on a substantial number of small entities (or "SISNOSE").  The supporting analyses for these determinations are presented in this section of the RIA.
As discussed in previous sections of the economic impact analysis, under the final NSPS, some affected producers are likely to be able to recover natural gas that would otherwise be vented to the atmosphere, as well as recover saleable condensates that would otherwise be emitted.  EPA estimates that the revenues from this additional natural gas product recovery will offset the costs of implementing control options implemented as a result of the final NSPS.  However, not all components of the final NSPS are estimated to have cost savings.  Therefore, we analyze potential impacts to better understand the potential distribution of impacts across industry segments and firms.  Unlike the controls for the final NSPS, the controls evaluated under the final NESHAP Amendments do not recover significant quantities of natural gas products.
Small Business National Overview
The industry sectors covered by the final rule were identified during the development of the engineering cost analysis.  The U.S. Census Bureau's Statistics of U.S. Businesses (SUSB) provides national information on the distribution of economic variables by industry and enterprise size. The Census Bureau and the Office of Advocacy of the Small Business Administration (SBA) supported and developed these files for use in a broad range of economic analyses.  Statistics include the total number of establishments, and receipts for all entities in an industry; however, many of these entities may not necessarily be covered by the final rule. SUSB also provides statistics by enterprise employment and receipt size (Table 7-15 and Table 7-16).
The Census Bureau's definitions used in the SUSB are as follows:
         #          Establishment: A single physical location where business is conducted or where services or industrial operations are performed.
         #          Firm: A firm is a business organization consisting of one or more domestic establishments in the same state and industry that were specified under common ownership or control. The firm and the establishment are the same for single-establishment firms. For each multi-establishment firm, establishments in the same industry within a state will be counted as one firm- the firm employment and annual payroll are summed from the associated establishments.
         #          Receipts: Receipts (net of taxes) are defined as the revenue for goods produced, distributed, or services provided, including revenue earned from premiums, commissions and fees, rents, interest, dividends, and royalties. Receipts exclude all revenue collected for local, state, and federal taxes.
         #          Enterprise: An enterprise is a business organization consisting of one or more domestic establishments that were specified under common ownership or control. The enterprise and the establishment are the same for single-establishment firms. Each multi-establishment company forms one enterprise -- the enterprise employment and annual payroll are summed from the associated establishments. Enterprise size designations are determined by the sum of employment of all associated establishments.

Because the SBA's business size definitions (SBA, 2008) apply to an establishment's "ultimate parent company," we assumed in this analysis that the "firm" definition above is consistent with the concept of ultimate parent company that is typically used for SBREFA analyses, and the terms are used interchangeably.

Table 7-15	Number of Firms, Total Employment, and Estimated Receipts by Firm Size and NAICS, 2007

                             Owned by Firms with:

                                     NAICS
                               NAICS Description
                  SBA Size Standard (effective Nov. 5, 2010)
                               < 20 Employees
                                20-99 Employees
                               100-499 Employees
                           Total < 500 Employees
                              > 500 Employees
                                  Total Firms
Number of Firms by Firm Size

                                    211111
Crude Petroleum and Natural Gas Extraction
                                      500
                                                                          5,759
                                                                            455
                                                                            115
                                                                          6,329
                                                                             95
                                                                          6,424
                                    211112
Natural Gas Liquid Extraction
                                      500
                                                                             77
                                                                              9
                                                                             12
                                                                             98
                                                                             41
                                                                            139
                                    213111
Drilling Oil and Gas Wells
                                      500
                                                                          1,580
                                                                            333
                                                                             97
                                                                          2,010
                                                                             49
                                                                          2,059
                                    486210
Pipeline Transportation of Natural Gas
                                 $7.0 million
                                                                             63
                                                                             12
                                                                              9
                                                                             84
                                                                             42
                                                                            126

Total Employment by Firm Size

                                    211111
Crude Petroleum and Natural Gas Extraction
                                      500
                                                                         21,170
                                                                         16,583
                                                                         17,869
                                                                         55,622
                                                                         77,664
                                                                        133,286
                                    211112
Natural Gas Liquid Extraction
                                      500
                                                                            372
                                                                            305
                                                                          1,198
                                                                          1,875
                                                                          6,648
                                                                          8,523
                                    213111
Drilling Oil and Gas Wells
                                      500
                                                                          5,972
                                                                         13,787
                                                                         16,893
                                                                         36,652
                                                                         69,774
                                                                        106,426
                                    486210
Pipeline Transportation of Natural Gas
                                 $7.0 million
                                                                            241
                                                                            382
                                                                          1,479
                                                                          2,102
                                                                         22,581
                                                                         24,683

Estimated Receipts by Firm Size ($1000)

                                    211111
Crude Petroleum and Natural Gas Extraction
                                      500
                                                                     12,488,688
                                                                     15,025,443
                                                                     17,451,805
                                                                     44,965,936
                                                                    149,141,316
                                                                    194,107,252
                                    211112
Natural Gas Liquid Extraction
                                      500
                                                                        209,640
                                                                        217,982
                                                                      1,736,706
                                                                      2,164,328
                                                                     37,813,413
                                                                     39,977,741
                                    213111
Drilling Oil and Gas Wells
                                      500
                                                                      1,101,481
                                                                      2,460,301
                                                                      3,735,652
                                                                      7,297,434
                                                                     16,550,804
                                                                     23,848,238
                                    486210
Pipeline Transportation of Natural Gas
                                 $7.0 million
                                                                        332,177
                                                                        518,341
                                                                      1,448,020
                                                                      2,298,538
                                                                     18,498,143
                                                                     20,796,681
Source:	U.S. Census Bureau. 2010. "Number of Firms, Number of Establishments, Employment, Annual Payroll, and Estimated Receipts by Enterprise Receipt Size for the United States, All Industries:  2007." <http://www.census.gov/econ/susb/>

Table 7-16	Distribution of Small and Large Firms by Number of Firms, Total Employment, and Estimated Receipts by Firm Size and NAICS, 2007

                               Percent of Firms
                                     NAICS
                               NAICS Description
                                  Total Firms
                               Small Businesses
                               Large Businesses
                                  Total Firms
Number of Firms by Firm Size

                                    211111
Crude Petroleum and Natural Gas Extraction
                                                                          6,424
                                                                          98.5%
                                                                           1.5%
                                                                         100.0%
                                    211112
Natural Gas Liquid Extraction
                                                                            139
                                                                          70.5%
                                                                          29.5%
                                                                         100.0%
                                    213111
Drilling Oil and Gas Wells
                                                                          2,059
                                                                          97.6%
                                                                           2.4%
                                                                         100.0%
                                    486210
Pipeline Transportation of Natural Gas
                                                                            126
                                                                          48.4%
                                                                          51.6%
                                                                         100.0%

Total Employment by Firm Size

                                    211111
Crude Petroleum and Natural Gas Extraction
                                                                        133,286
                                                                          41.7%
                                                                          58.3%
                                                                         100.0%
                                    211112
Natural Gas Liquid Extraction
                                                                          8,523
                                                                          22.0%
                                                                          78.0%
                                                                         100.0%
                                    213111
Drilling Oil and Gas Wells
                                                                        106,426
                                                                          34.4%
                                                                          65.6%
                                                                         100.0%
                                    486210
Pipeline Transportation of Natural Gas
                                                                         24,683
                                                                           N/A*
                                                                           N/A*
                                                                           N/A*

Estimated Receipts by Firm Size ($1000)

                                    211111
Crude Petroleum and Natural Gas Extraction
                                                                    194,107,252
                                                                          23.2%
                                                                          76.8%
                                                                         100.0%
                                    211112
Natural Gas Liquid Extraction
                                                                     39,977,741
                                                                           5.4%
                                                                          94.6%
                                                                         100.0%
                                    213111
Drilling Oil and Gas Wells
                                                                     23,848,238
                                                                          30.6%
                                                                          69.4%
                                                                         100.0%
                                    486210
Pipeline Transportation of Natural Gas
                                                                     20,796,681
                                                                           N/A*
                                                                           N/A*
                                                                           N/A*
Note: Employment and receipts could not be broken down between small and large businesses because of non-disclosure requirements.
Source: SBA

While the SBA and Census Bureau statistics provide informative broad contextual information on the distribution of enterprises by receipts and number of employees, it is also useful to additionally contrast small and large enterprises (where large enterprises are defined as those that are not small, according to SBA criteria) in the oil and natural gas industry.  The summary statistics presented in previous tables indicate that there are a large number of relatively small firms and a small number of large firms.  Given the majority of expected impacts of the final rules arises from well completion-related requirements, which impacts production activities, exclusively, some explanation of this particular market structure is warranted as it pertains to production and small entities.  An important question to answer is whether there are particular roles that small entities serve in the production segment of the oil and natural gas industry that may be disproportionately affected by the final rules.
      The first important broad distinction among firms is whether they are independent or integrated.  Independent firms concentrate on exploration and production (E&P) activities, while integrated firms are vertically integrated and often have operations in E&P, processing, refining, transportation, and retail.  To our awareness, there are no small integrated firms.  Independent firms may own and operate wells or provide E&P-related services to the oil and gas industry.  Since we are focused on evaluating potential impacts to small firms owning and operating new and existing hydraulically fractured wells, we should narrow down on this sector.
      In our understanding, there is no single industry niche for small entities in the production segment of the industry since small operators have different business strategies and that small entities can own different types of wells.  The organization of firms in oil and natural gas industry also varies greatly from firm to firm.  Additionally, oil and natural gas resources vary widely geographically and can vary significantly within a single field.
      Among many important roles, independent small operators historically pioneered exploration in new areas, as well as developed new technologies.  By taking on these relatively large risks, these small entrepreneurs (wildcatters) have been critical sources of industrial innovation and opened up critical new energy supplies for the U.S. (IHS Global Insight).  In recent decades, as the oil and gas industry has concentrated via mergers, many of these smaller firms have been absorbed into large firms.
      Another critical role, which provides an interesting contrast to small firms pioneering new territory, is that smaller independents maintain and operate a large proportion of the Nation's low producing wells, which are also known as marginal or stripper wells (Duda et al. 2005).  While marginal wells represent about 80 percent of the population of producing wells, they produce about 15 percent of domestic production, according to EIA (Table 7-17).

Table 7-17	Distribution of Crude Oil and Natural Gas Wells by Productivity Level, 2009
Type of Wells
                                  Wells (no.)
                                   Wells (%)
                    Production (MMbbl for oil and Bcf gas)
                                Production (%)
Crude Oil

Stripper Wells (<15 boe per year)
                                                                        310,552
                                                                            85%
                                                                            311
                                                                            19%

Other Wells (>=15 boe per year)
                                                                         52,907
                                                                            15%
                                                                          1,331
                                                                            81%

Total Crude Oil Wells
                                                                        363,459
                                                                           100%
                                                                          1,642
                                                                           100%
Natural Gas

Natural Gas Stripper Wells (<15 boe per year)
                                                                        338,056
                                                                            73%
                                                                          2,912
                                                                            12%

Other Natural Gas Wells (>=15 boe per year)
                                                                        123,332
                                                                            27%
                                                                         21,048
                                                                            88%

Total Natural Gas Wells
                                                                        461,388
                                                                           100%
                                                                         23,959
                                                                           100%
Source: U.S. Energy Information Administration, Distribution of Wells by Production Rate Bracket. <http://www.eia.gov/pub/oil_gas/petrosystem/us_table.html> Accessed 7/10/11.
Note: Natural gas production converted to barrels oil equivalent (boe) uses the conversion of 0.178 barrels of crude oil to 1000 cubic feet natural gas.

      Many of these wells were likely drilled and initially operated by major firms (although the data are not available to quantify the percentage of wells initially drilled by small versus large producers).  Well productivity levels typically follow a steep decline curve; high production in earlier years but sustained low production for decades.  Because of relatively low overhead of maintaining and operating few relatively co-located wells, some small operators with a particular business strategy purchase low producing wells from the majors, who concentrate on new opportunities.   As small operators have provided important technical innovation in exploration, small operators have also been sources of innovation in extending the productivity and lifespan of existing wells (Duda et al. 2005).
Small Entity Economic Impact Measures
The final Oil and Natural Gas NSPS and NESHAP Amendments will affect the owners of the facilities that will incur compliance costs to control their regulated emissions. The owners, either firms or individuals, are the entities that will bear the financial impacts associated with these additional operating costs. The final rule has the potential to impact all firms owning affected facilities, both large and small.
The analysis provides EPA with an estimate of the magnitude of impacts the final NSPS and NESHAP Amendments may have on the ultimate domestic parent companies that own facilities EPA expects might be impacted by the rules. The analysis focuses on small firms because they may have more difficulty complying with a new regulation or affording the costs associated with meeting the new standard. This section presents the data sources used in the analysis, the methodology we applied to develop estimates of impacts, the results of the analysis, and conclusions drawn from the results.
The small business impacts analysis for the NSPS and NESHAP Amendments relies upon a series of firm-level sales tests (represented as cost-to-revenue ratios) for firms that are likely to be associated with NAICS codes listed in Table 7-15.  For both the NSPS and NESHAP Amendments, we obtained firm-level employment, revenues, and production levels using various sources, including the American Business Directory, the Oil and Gas Journal, corporate websites, and publically-available financial reports.  Using these data, we estimated firm-level compliance cost impacts and calculated cost-to-revenue ratios to identify small firms that might be significantly impacts by the rules.  The approaches taken for the NSPS and NESHAP Amendments differed; more detail on approaches for each set of rules is presented in the following sections.
For the sales test, we divided the estimates of annualized establishment compliance costs by estimates of firm revenue. This is known as the cost-to-revenue ratio, or the "sales test." The "sales test" is the impact methodology EPA employs in analyzing small entity impacts as opposed to a "profits test," in which annualized compliance costs are calculated as a share of profits.  The sales test is often used because revenues or sales data are commonly available for entities impacted by EPA regulations, and profits data normally made available are often not the true profit earned by firms because of accounting and tax considerations.  Revenues as typically published are correct figures and are more reliably reported when compared to profit data. The use of a "sales test" for estimating small business impacts for a rulemaking such as this one is consistent with guidance offered by EPA on compliance with SBREFA and is consistent with guidance published by the U.S. SBA's Office of Advocacy that suggests that cost as a percentage of total revenues is a metric for evaluating cost increases on small entities in relation to increases on large entities (U.S. SBA, 2010).8
Small Entity Economic Impact Analysis, Final NSPS
Overview of Sample Data and Methods
The final NSPS covers emissions points within various stages of the oil and natural gas production process.  We expect that firms within multiple NAICS codes will be affected, namely the NAICS categories presented in Table 7-15.  Because of the diversity of the firms potentially affected, we decided to analyze three distinct groups of firms within the oil and natural gas industry, while accounting for overlap across the groups.  We analyze firms that are involved in oil and natural gas extraction that are likely to drill and operate wells, while a subset are integrated firms involved in multiple segments of production, as well as retailing products.  We also analyze firms that primarily operate natural gas processing plants.  A third set of firms we analyzed contains firms that primarily operate natural gas compression and pipeline transmission.
To identify firms involved in the drilling and primary production of oil and natural gas, we relied upon the annual Oil and Gas Journal 150 Survey (OGJ 150) as described in the Industry Profile in Section 2.  While the OGJ 150 lists public firms, we believe the list is reasonably representative of the larger population of public and private firms operating in this segment of the industry.  While the proportion of small firm in the OGJ 150 is smaller than the proportion evaluated by the Census SUSB, the OGJ 150 provides detailed information on the production activities and financial returns of the firms within the list, which are critical ingredients to the small business impacts analysis.  We drew upon the OGJ 150 lists published for the years 2008 and 2009 (Oil and Gas Journal, September 21, 2009 and Oil and Gas Journal, September 6, 2010).  The year 2009 saw relatively low levels of drilling activities because of the economic recession, while 2008 saw a relatively high level of drilling activity because of high fuel prices.  Combined, we believe these two years of data are representative.
To identify firms that process natural gas, the OGJ also releases a period report entitled "Worldwide Gas Processing Survey", which provides a wide range of information on existing processing facilities.  We used the most recent list of U.S. gas processing facilities and other resources, such as the American Business Directory and company websites, to best identify the parent company of the facilities.  To identify firms that compress and transport natural gas via pipelines, we examined the periodic OGJ survey on the economics of the U.S. pipeline industry.  This report examines the economic status of all major and non-major natural gas pipeline companies.  For these firms, we also used the American Business Directory and corporate websites to best identify the ultimate owner of the facilities or companies.
After combining the information for exploration and production firms, natural gas processing firms, and natural gas pipeline transmission firms in order to identify overlaps across the list, the approach yielded a sample of 274 firms that would potentially be affected by the final NSPS in 2015 assuming their 2015 production activities were similar to those in 2008 and 2009.  We estimate that 127 (46 percent) of these firms are small according to SBA criteria.  We estimate 119 firms (43 percent) are not small firms according to SBA criteria.  We are unable to classify the remaining 28 firms (10 percent) because of a lack of required information on employee counts or revenue estimates.
Table 7-18 shows the estimated revenues for 246 firms for which we have sufficient data that would be potentially affected by the final NSPS based upon their activities in 2008 and 2009.  We segmented the sample into four groups, production and integrated firms, processing firms, pipeline firms, and pipelines/processing firms.  For the firms in the pipelines/processing group, we were unable to determine the firms' primary line of business, so we opted to group together as a fourth group.

Table 7-18	Estimated Revenues for Firms in Sample, by Firm Type and Size

                                Number of Firms
                  Estimated Revenues (millions, 2008 dollars)
Firm Type/Size

                                     Total
                                    Average
                                    Median
                                    Minimum
                                    Maximum
Production and Integrated

Small
                                      77
                                                                       18,451.9
                                                                          239.6
                                                                           76.3
                                                                            0.1
                                                                        1,116.9

Large
                                      47
                                                                    1,345,292.0
                                                                        28623.2
                                                                        1,788.3
                                                                           12.9
                                                                      310,586.0

Subtotal
                                      124
                                                                    1,363,743.9
                                                                       10,997.9
                                                                          344.6
                                                                            0.1
                                                                      310,586.0
Pipeline

Small
                                      11
                                                                          694.5
                                                                           63.1
                                                                            4.6
                                                                            0.5
                                                                          367.0

Large
                                      36
                                                                      166,290.2
                                                                        4,619.2
                                                                          212.9
                                                                            7.1
                                                                      112,493.0

Subtotal
                                      47
                                                                      166,984.6
                                                                        3,552.9
                                                                          108.0
                                                                            0.5
                                                                      112,493.0
Processing

Small
                                      39
                                                                        4,972.1
                                                                          127.5
                                                                           26.9
                                                                            1.9
                                                                        1,459.1

Large
                                      23
                                                                      177,632.1
                                                                        8,881.6
                                                                        2,349.4
                                                                           10.4
                                                                       90,000.0

Subtotal
                                      62
                                                                      182,604.2
                                                                        3,095.0
                                                                           41.3
                                                                            1.9
                                                                       90,000.0
Pipelines/Processing

Small
                                       0
                                                                            N/A
                                                                            N/A
                                                                            N/A
                                                                            N/A
                                                                            N/A

Large
                                      13
                                                                      175,128.5
                                                                       13,471.4
                                                                        6,649.4
                                                                          858.6
                                                                       71,852.0

Subtotal
                                      13
                                                                      175,128.5
                                                                       13,471.4
                                                                        6,649.4
                                                                          858.6
                                                                       71,852.0
Total

Small
                                      127
                                                                       24,118.5
                                                                          189.9
                                                                           34.9
                                                                            0.1
                                                                        1,459.1

Large
                                      119
                                                                    1,864,342.8
                                                                       16,071.9
                                                                        1,672.1
                                                                            7.1
                                                                      310,586.0

Total
                                      246
                                                                    1,888,461.3
                                                                        7,771.4
                                                                          164.9
                                                                            0.1
                                                                      310,586.0
Sources: Oil and Gas Journal. "OGJ150." September 21, 2009; Oil and Gas Journal. "OGJ150 Financial Results Down in '09; Production, Reserves Up." September 6, 2010.  Oil and Gas Journal. "Special Report: Worldwide Gas Processing: New Plants, Data Push Global Gas Processing Capacity Ahead in 2009." June 7, 2010, with additional analysis to determine ultimate ownership of plants.  Oil and Gas Journal. "Natural Gas Pipelines Continue Growth Despite Lower Earnings; Oil Profits Grow." November 1, 2010.  American Business Directory was used to determine number of employees.

As shown in Table 7-18, there is a wide variety of revenue levels across firm size, as well as across industry segments.  The estimated revenues within the sample are concentrated on integrated firms and firms engaged in production activities (the E&P firms mentioned earlier).

	The oil and natural gas industry is capital-intensive.  To provide more context on the potential impacts of new regulatory requirements, Table 7-19 presents descriptive statistics for small and large integrated and production firms from the sample of firms (117 of the 124 integrated and production firms listed in the Oil and Gas Journal; capital and exploration expenditures for 7 firms were not reported in the Oil and Gas Journal).
Table 7-19	Descriptive Statistics of Capital and Exploration Expenditures, Small and Large Firms in Sample, 2008 and 2009 (million 2008 dollars)

         Capital and Exploration Expenditures (millions, 2008 dollars)
Firm Size
                                    Number
                                     Total
                                    Average
                                    Median
                                    Minimum
                                    Maximum
Small
                                      74
                                                                       13,262.9
                                                                          179.2
                                                                           60.4
                                                                            0.1
                                                                        2,401.9
Large
                                      43
                                                                      127,505.6
                                                                        2,965.2
                                                                          982.7
                                                                            0.1
                                                                       22,518.7
Total
                                      117
                                                                      140,768.5
                                                                        1,203.1
                                                                          192.8
                                                                            0.1
                                                                       22,518.7

Sources: Oil and Gas Journal. "OGJ150." September 21, 2009; Oil and Gas Journal. "OGJ150 Financial Results Down in '09; Production, Reserves Up." September 6, 2010.  American Business Directory was used to determine number of employees.

The average 2008 and 2009 total capital and exploration expenditures for the sample of 117 firms were approximately $140 billion in 2008 dollars).  About 9 percent of this total was spent by small firms.  Average capital and explorations expenditures for small firms are about 6 percent of large firms; median expenditures of small firms are about 6 percent of large firms' expenditures.  For small firms, capital and exploration expenditures are high relative to revenue, which appears to hold true more generally for independent E&P firms compared to integrated major firms.  This would seem to indicate the capital-intensive nature of E&P activities.  As expected, this would drive up ratios comparing estimated engineering costs to revenues and capital and exploration expenditures.
	Table 7-20 breaks down the estimated number of natural gas and crude oil wells drilled by the 121 firms in the sample for which the Oil and Gas Journal information reported well-drilling estimates.  Note the fractions on the minimum and maximum statistics; the fractions reported are due to our assumptions to estimate oil and natural gas wells drilled from the total wells drilled reported by the Oil and Gas Journal.  The OGJ150 lists new wells drilled by firm in 2008 and 2009, but the drilling counts are not specific to crude oil or natural gas wells.  We apportion the wells drilled to natural gas and crude oil wells using the distribution of well drilling in 2009 (63 percent natural gas and 37 percent oil).
Table 7-20	Descriptive Statistics of Estimated Wells Drilled, Small and Large Firms in Sample, 2008 and 2009 (million 2008 dollars)

Estimated Average Wells Natural Gas and Crude Oil Wells Drilled (2008 and 2009)
Well Type
Firm Size
                                Number of Firms
                                     Total
                                    Average
                                    Median
                                    Minimum
                                    Maximum
Natural Gas

Small
                                      77
                                                                        2,049.5
                                                                           26.6
                                                                            5.7
                                                                            0.2
                                                                          259.3

Large
                                      44
                                                                        9,723.1
                                                                          221.0
                                                                          153.2
                                                                            0.6
                                                                          868.3

Subtotal
                                      121
                                                                       11,772.5
                                                                           97.3
                                                                           28.3
                                                                            0.2
                                                                          868.3
Crude Oil

Small
                                      77
                                                                         1179.6
                                                                           15.3
                                                                            3.3
                                                                            0.1
                                                                          149.2

Large
                                      44
                                                                         5596.3
                                                                          127.2
                                                                           88.1
                                                                            0.4
                                                                          499.7

Subtotal
                                      121
                                                                        6,775.9
                                                                           56.0
                                                                           16.3
                                                                            0.1
                                                                          499.7
Total

Small
                                       7
                                                                        3,229.1
                                                                           41.9
                                                                            9.0
                                                                            0.3
                                                                          408.5

Large
                                      44
                                                                       15,319.4
                                                                          348.2
                                                                          241.3
                                                                            1.0
                                                                        1,368.0

Total
                                      121
                                                                       18,548.4
                                                                          153.3
                                                                           44.6
                                                                            0.3
                                                                        1,368.0

Sources: Oil and Gas Journal. "OGJ150." September 21, 2009; Oil and Gas Journal. "OGJ150 Financial Results Down in '09; Production, Reserves Up." September 6, 2010.  American Business Directory was used to determine number of employees.

This table highlights the fact that many firms drill relatively few wells; the median for small firms is approximately 6 natural gas wells compared to 153 for large firms.  Later in this section, we examine whether this distribution has implications for the engineering costs estimates, as well as the estimates of expected natural product recovery from controls such as RECs.
Unlike the analysis that follows for the analysis of impacts on small business from the NESHAP Amendments, we have no specific data on potentially affected facilities under the NSPS.  The NSPS will apply to new and modified sources, for which data are not fully available in advance, particularly in the case of new and modified sources such as well completions and recompletions which are spatially diffuse and potentially large in number.
The engineering cost analysis estimated compliance costs in a top-down fashion, projecting the number of new sources at an annual level and multiplying these estimates by model unit-level costs to estimate national impacts.  To estimate per-firm compliance costs in this analysis, we followed a procedure similar to that of entering estimate compliance costs in NEMS on a per well basis.  We first use the OGJ150-based list to estimate engineering compliance costs for integrated and production companies that may operate facilities in more than one segment of the oil and natural gas industry.  We then estimate the compliance costs per crude oil and natural gas well by totaling all compliance costs estimates in the engineering cost estimates for the final NSPS and dividing that cost by the total number of crude oil and natural gas wells forecast as of 2015, the year of analysis.  These compliance costs include the expected revenue from natural gas and condensate recovery that result from implementation of some controls.
This estimation procedure yielded an estimate of crude oil well compliance costs of $225 per drilled well and natural gas well compliance costs of $17,500 without considering estimated revenues from product recovery and  $225 and -$1070 per drilled crude oil and natural gas well, respectively, with estimated revenues from product recovery included.  Note that the divergence of estimated per well costs between crude oil and natural gas wells is because the final NSPS requirements are primary directed toward natural gas wells.  Also note that the per well cost savings estimate for natural gas wells is different than the estimated cost of implementing a REC; this difference is because this estimate is picking up savings from other control options.  We then estimate a single-year, firm-level compliance cost for this subset of firms by multiplying the per well cost estimates with the well count estimates.
The OGJ reports plant processing capacity in terms of MMcf/day.  In the energy system impacts analysis, the NEMS model estimates a 6.5 percent increase (from 21.05 tcf in 2011 to 22.43 tcf in 2015) in domestic natural gas production from 2011 to 2015, the analysis year.  On this, basis, we estimate that natural gas processing capacity for all plants in the OGJ list will increase 1.3 percent per year.  This annual increment is equivalent to an increase in national gas processing capacity of 350 bcf per year.  We assume that the engineering compliance costs estimates associated with processing are distributed according to the proportion of the increased national processing capacity contributed by each processing plant.  These costs are estimated at $7.2 million without estimated revenues from product recovery and $6.2 with estimated revenues from product recovery, respectively, in 2008 dollars, or about $21/MMcf without revenues and $17/MMcf with revenues.
The OGJ report on pipeline companies has the advantage that it reports expenditures on plant additions.  We assume that the firm-level compression and transmission-related NSPS compliance costs are proportional to the expenditures on plant additions and that these additions reflect a representative year or this analysis.  We estimate the annual compression and transmission-related NSPS compliance costs at $5.5 million without estimated revenues from product recovery and $3.7 million with estimated revenues from product recovery, respectively, in 2008 dollars.
Small Entity Impact Analysis, Final NSPS, Results
Summing estimated annualized engineering compliance costs across industry segment and individual firms in our sample, we estimate firms in the OGJ-based sample will face about 220 million in 2008 dollars, about 64 percent of the estimated annualized costs of the final NSPS without including revenues from additional product recovery $327 million).  When including revenues from additional product recovery, the estimated compliance costs for the firms in the sample is about -$720,000.
Table 7-21 presents the distribution of estimated final NSPS compliance costs across firm size for the firms within our sample.  Evident from this table, about 96 percent of the estimated engineering compliance costs accrue to the integrated and production segment of the industry, again explained by the fact that completion-related requirements contribute the bulk of the estimated engineering compliance costs (as well as estimated emissions reductions).  About 16 percent of the total estimated engineering compliance costs (and about 17 percent of the costs accruing the integrated and production segment) are focused on small firms.

Table 7-21	Distribution of Estimated Final NSPS Compliance Costs Without Revenues from Additional Natural Gas Product Recovery across Firm Size in Sample of Firms

                                Number of Firms
Estimated Engineering Compliance Costs Without Estimated Revenues from Natural Gas Product Recovery (2008 dollars)
Firm Type/Size

                                     Total
                                    Average
                                    Median
                                    Minimum
                                    Maximum
Production and Integrated

Small
                                      77
                                                                     35,182,059
                                                                        456,910
                                                                         95,299
                                                                          1,463
                                                                      4,552,593

Large
                                      47
                                                                    175,543,216
                                                                      3,734,962
                                                                      2,631,873
                                                                         15,433
                                                                     15,255,379

Subtotal
                                      124
                                                                    210,725,275
                                                                      1,699,397
                                                                        438,547
                                                                          1,463
                                                                     15,255,379
Pipeline

Small
                                      11
                                                                          3,738
                                                                            340
                                                                            123
                                                                             20
                                                                          1,264

Large
                                      36
                                                                      1,641,771
                                                                         45,605
                                                                          4,218
                                                                             41
                                                                        994,491

Subtotal
                                      47
                                                                      1,645,509
                                                                         35,011
                                                                          2,498
                                                                             20
                                                                        994,491
Processing

Small
                                      39
                                                                        482,232
                                                                         12,365
                                                                          1,906
                                                                            191
                                                                        279,864

Large
                                      23
                                                                        870,458
                                                                         37,846
                                                                          8,236
                                                                             38
                                                                        429,043

Subtotal
                                      62
                                                                      1,352,690
                                                                         21,818
                                                                          2,764
                                                                             38
                                                                        429,043
Pipelines/Processing

Small
                                       0
                                                                            ---
                                                                            ---
                                                                            ---
                                                                            ---
                                                                            ---

Large
                                      13
                                                                      5,828,374
                                                                        448,336
                                                                        159,519
                                                                          2,040
                                                                      2,892,799

Subtotal
                                      13
                                                                      5,828,374
                                                                        448,336
                                                                        159,519
                                                                          2,040
                                                                      2,892,799
Total

Small
                                      127
                                                                     35,668,029
                                                                        280,851
                                                                         22,511
                                                                             20
                                                                      4,552,593

Large
                                      119
                                                                    183,883,819
                                                                      1,545,242
                                                                         48,054
                                                                             38
                                                                     15,255,379

Total
                                      246
                                                                    219,551,848
                                                                        892,487
                                                                         33,520
                                                                             20
                                                                     15,255,379

These distributions are similar when the revenues from expected natural gas recovery are included (Table 7-22).  About 9 percent of the total savings from the final NSPS is expected to accrue to small firms (about 23 percent of the savings to the integrated and production segment accrue to small firms).  Note also in Table 7-22 that the pipeline and processing segments (and the pipeline/processing firms) are not expected to experience net cost savings (negative costs) from the final NSPS.

Table 7-22	Distribution of Estimated Final NSPS Compliance Costs With Revenues from Additional Natural Gas Product Recovery across Firm Size in Sample of Firms

                                Number of Firms
Estimated Engineering Compliance Costs With Estimated Revenues from Natural Gas Product Recovery (millions, 2008 dollars)
Firm Type/Size

                                     Total
                                    Average
                                    Median
                                    Minimum
                                    Maximum
Production and Integrated

Small
                                      77
                                                                     -1,930,670
                                                                        -25,074
                                                                         -5,341
                                                                       -255,773
                                                                         22,919

Large
                                      47
                                                                     -6,565,092
                                                                       -139,683
                                                                       -126,073
                                                                       -847,055