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.  Although the proportion of small firms in the OGJ 150 is smaller than the proportion evaluated by the Census Bureau's 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. The Census SUSB provides aggregated totals for all businesses in a particular NAICS code. It is not possible to use these data to identify those firms that actually drill wells or specific financial information for individual firms.
The OGJ 150 includes all public firms incorporated in the U.S. with reserves in the U.S. While the OGJ 150 lists only 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.  The sample of firms represented by the OGJ 150 accounts for 62% of the gas wells drilled in 2008 and 2009. While the population of firms responsible for the remaining 38% of gas wells may include some small private firms, there are also a number of large private companies and foreign firms not represented in the OGJ 150. Examples of companies that are not included in the OGJ 150, but that are likely responsible for a large number of hydraulically fractured natural gas well completions include BP, Encana, and Royal Dutch Shell.
To further examine the representativeness of the sample, EPA compared the revenues reported for the OGJ 150 to those reported for small firms in the Census Bureau's SUSB. While the average revenues in the OGJ 150 appear significantly larger than those in the Census Bureau's SUSB, this comparison is misleading. First, the OGJ 150 reports pre-tax revenues, which we would expect to be higher in every instance than the post-tax Census Bureau's SUSB receipts. Additionally, due to the size of the sample, the descriptive statistics for the OGJ 150 may be influenced by a few particularly large data points. For example, for firms with 10 to 19 employees, removing one firm from the OGJ 150 sample decreases the average revenue for the group by approximately 38 percent. The result is roughly equal to the Census SUSB average for the same group, even before any adjustment for taxes. We believe that, despite these outliers, the data for the OGJ 150 are generally representative of the population in this industry.
While the Census SUSB data includes a greater proportion of very small firms (0-4 employees) than the OGJ 150 sample, we believe this sample appropriately reflects the industry for a number of reasons. First, the OGJ 150 includes companies of a range of sizes, from 1 to over 1 million employees. While there is generally a relationship between size and revenues, this does not necessarily hold true when examining the impacts on individual firms. In some cases, a firm with relatively few employees may have higher revenues than a much larger firm. Additionally, there is not necessarily a relationship between the size of a firm and the proportion of its costs to revenues. Finally, as discussed above, it is impossible to determine what portion of the firms in the Census SUSB would be affected firms under the NSPS provisions related to completions of hydraulically fractured and refractured natural gas wells.
In the analysis that follows, we present median, minimum, and maximum values in addition to the average to provide readers with a more complete understanding of the firms in the sample. We are not able to compare these additional statistics to the Census Bureau's SUSB due to the aggregated nature of those data. When making a SISNOSE determination, we calculate the sales test ratio at the firm level, rather than as an average as is reported by the Census SUSB. By using this methodology, we ensure that the results reflect the impacts to all firms in the sample and are not skewed by unusually large data points.
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.  These firms represent all potentially impacted firms in these segments, not a sample.
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

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
                                      77
                                                                        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 REC.
Unlike the analysis of regulatory impacts on small entities 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 estimated 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 $260 per drilled well and natural gas well compliance costs of $8,800 or less than 1 percent of the average costs of drilling a well according to EIA (see Table 2-8) without considering estimated revenues from product recovery and $260 and -$940 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 by 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 $6.9 million without estimated revenues from product recovery and $5.0 million with estimated revenues from product recovery, respectively, in 2008 dollars, or about $20/MMcf without revenues and $14/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 $6.0 million without estimated revenues from product recovery and $5.9 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 $117 million in 2008 dollars, about 69 percent of the estimated annualized costs of the final NSPS without including revenues from additional product recovery of $116 million.  When including revenues from additional product recovery, the estimated compliance costs for the firms in the sample are about $1.1 million.
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 92 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 16 percent of the costs accruing to the integrated and production segment) are concentrated 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
                                                                     17,795,916
                                                                        231,116
                                                                         48,134
                                                                            749
                                                                      2,299,042

Large
                                      47
                                                                     90,671,503
                                                                      1,929,181
                                                                      1,361,483
                                                                         10,325
                                                                      7,710,293

Subtotal
                                      124
                                                                    108,467,419
                                                                        874,737
                                                                        221,017
                                                                            749
                                                                      7,710,293
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
                                                                     18,281,886
                                                                        143,952
                                                                         13,602
                                                                             20
                                                                      2,299,042

Large
                                      119
                                                                     99,012,106
                                                                        832,035
                                                                         48,054
                                                                             38
                                                                      7,710,293

Total
                                      246
                                                                    117,293,992
                                                                        476,805
                                                                         22,225
                                                                             20
                                                                      7,710,293

These distributions are similar when the revenues from expected natural gas recovery are included (Table 7-22).  A total savings from the final NSPS of about $1.1 million is expected to accrue to small firms (about 23 percent of the savings to the integrated and production segment accrue to small firms), while large firms are expected to have a total cost of $2.3 million.  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
                                                                     -1,500,434
                                                                        -19,486
                                                                             25
                                                                       -218,672
                                                                         23,982

Large
                                      47
                                                                     -5,137,073
                                                                       -109,299
                                                                       -108,363
                                                                       -721,121
                                                                        924,574

Subtotal
                                      124
                                                                     -6,637,507
                                                                        -53,528
                                                                        -11,873
                                                                       -721,121
                                                                        924,574
Pipeline

Small
                                      11
                                                                          3,629
                                                                            330
                                                                            119
                                                                             19
                                                                          1,226

Large
                                      36
                                                                      1,593,661
                                                                         44,268
                                                                          4,095
                                                                             40
                                                                        965,348

Subtotal
                                      47
                                                                      1,597,289
                                                                         33,985
                                                                          2,425
                                                                             19
                                                                        965,348
Processing

Small
                                      39
                                                                        349,635
                                                                          8,965
                                                                          1,382
                                                                            138
                                                                        202,911

Large
                                      23
                                                                        631,112
                                                                         27,440
                                                                          5,971
                                                                             28
                                                                        311,071

Subtotal
                                      62
                                                                        980,747
                                                                         15,819
                                                                          2,004
                                                                             28
                                                                        311,071
Pipelines/Processing

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

Large
                                      13
                                                                      5,198,212
                                                                        399,862
                                                                        143,446
                                                                          1,511
                                                                      2,777,165

Subtotal
                                      13
                                                                      5,198,212
                                                                        399,862
                                                                        143,446
                                                                          1,511
                                                                      2,777,165
Total

Small
                                      127
                                                                     -1,147,170
                                                                         -9,033
                                                                            207
                                                                       -218,672
                                                                        202,911

Large
                                      119
                                                                      2,285,911
                                                                         19,209
                                                                          2,419
                                                                       -721,121
                                                                      2,777,165

Total
                                      246
                                                                      1,138,741
                                                                          4,629
                                                                            343
                                                                       -721,121
                                                                      2,777,165

Table 7-23	Summary of Sales Test Ratios, Without Revenues from Additional Natural Gas Product Recovery for Firms Affected by Final NSPS

                                Number of Firms
Descriptive Statistics for Sales Test Ratio Without Estimated Revenues from Natural Gas Product Recovery (%)
Firm Type/Size

                                    Average
                                    Median
                                    Minimum
                                    Maximum
Production and Integrated

Small
                                      77
                                                                          0.49%
                                                                          0.11%
                                                                          0.00%
                                                                         11.86%

Large
                                      47
                                                                          0.10%
                                                                          0.07%
                                                                          0.00%
                                                                          0.65%

Subtotal
                                      124
                                                                          0.34%
                                                                          0.09%
                                                                          0.00%
                                                                         11.86%
Pipeline

Small
                                      11
                                                                          0.01%
                                                                          0.00%
                                                                          0.00%
                                                                          0.01%

Large
                                      36
                                                                          0.01%
                                                                          0.00%
                                                                          0.00%
                                                                          0.06%

Subtotal
                                      47
                                                                          0.01%
                                                                          0.00%
                                                                          0.00%
                                                                          0.06%
Processing

Small
                                      39
                                                                          0.02%
                                                                          0.01%
                                                                          0.00%
                                                                          0.16%

Large
                                      23
                                                                          0.01%
                                                                          0.00%
                                                                          0.00%
                                                                          0.16%

Subtotal
                                      62
                                                                          0.02%
                                                                          0.01%
                                                                          0.00%
                                                                          0.16%
Pipelines/Processing

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

Large
                                      13
                                                                          0.00%
                                                                          0.00%
                                                                          0.00%
                                                                          0.01%

Subtotal
                                      13
                                                                          0.00%
                                                                          0.00%
                                                                          0.00%
                                                                          0.01%
Total

Small
                                      127
                                                                          0.30%
                                                                          0.04%
                                                                          0.00%
                                                                         11.86%

Large
                                      119
                                                                          0.05%
                                                                          0.01%
                                                                          0.00%
                                                                          0.65%

Total
                                      246
                                                                          0.18%
                                                                          0.02%
                                                                          0.00%
                                                                         11.86%

	The mean cost-sales ratio for all businesses when estimated product recovery is excluded from the analysis of the sample data is 0.18 percent, with a median ratio of 0.02 percent, a minimum of less than 0.01 percent, and a maximum of over 11 percent (Table 7-23).  For small firms in the sample, the mean and median cost-sales ratios are 0.30 percent and 0.04 percent, respectively, with a minimum of less than 0.01 percent and a maximum of over 11 percent (Table 7-23).  Each of these statistics indicates that, when considered in the aggregate, impacts are relatively higher on small firms than on large firms when the estimated revenue from additional natural gas product recovery is excluded.  However, as the next table shows, the reverse is true when these revenues are included.

Table 7-24	Summary of Sales Test Ratios, With Revenues from Additional Natural Gas Product Recovery for Firms Affected by Final NSPS

                                Number of Firms
Descriptive Statistics for Sales Test Ratio With Estimated Revenues from Natural Gas Product Recovery (%)
Firm Type/Size

                                    Average
                                    Median
                                    Minimum
                                    Maximum
Production and Integrated

Small
                                      77
                                                                         -0.01%
                                                                          0.00%
                                                                         -0.85%
                                                                          0.40%

Large
                                      47
                                                                          0.00%
                                                                          0.00%
                                                                         -0.06%
                                                                          0.14%

Subtotal
                                      124
                                                                         -0.01%
                                                                          0.00%
                                                                         -0.85%
                                                                          0.40%
Pipeline

Small
                                      11
                                                                          0.01%
                                                                          0.00%
                                                                          0.00%
                                                                          0.01%

Large
                                      36
                                                                          0.01%
                                                                          0.00%
                                                                          0.00%
                                                                          0.06%

Subtotal
                                      47
                                                                          0.01%
                                                                          0.00%
                                                                          0.00%
                                                                          0.06%
Processing

Small
                                      39
                                                                          0.01%
                                                                          0.01%
                                                                          0.00%
                                                                          0.11%

Large
                                      23
                                                                          0.01%
                                                                          0.00%
                                                                          0.00%
                                                                          0.11%

Subtotal
                                      62
                                                                          0.01%
                                                                          0.00%
                                                                          0.00%
                                                                          0.11%
Pipelines/Processing

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

Large
                                      13
                                                                          0.00%
                                                                          0.00%
                                                                          0.00%
                                                                          0.01%

Subtotal
                                      13
                                                                          0.00%
                                                                          0.00%
                                                                          0.00%
                                                                          0.01%
Total

Small
                                      127
                                                                          0.00%
                                                                          0.00%
                                                                         -0.85%
                                                                          0.40%

Large
                                      119
                                                                          0.00%
                                                                          0.00%
                                                                         -0.06%
                                                                          0.14%

Total
                                      246
                                                                          0.00%
                                                                          0.00%
                                                                         -0.85%
                                                                          0.40%

	The mean cost-sales ratio for all businesses when estimated product recovery is included is in the sample is less than 0.01 percent, with a median ratio of less than 0.01 percent, a minimum of  -0.85 percent, and a maximum of 0.40 percent (Table 7-24).  For small firms in the sample, the mean and median cost-sales ratios are less than 0.01 percent and less than 0.01 percent, respectively, with a minimum of -0.85 percent and a maximum of 0.40 percent (Table 7-24).  Each of these statistics indicates that, when considered in the aggregate, impacts are small on small business when the estimated revenue from additional natural gas product recovery are included, the reverse of the conclusion found when these revenues are excluded.
Meanwhile, Table 7-25 presents the distribution of estimated cost-sales ratios for the small firms in our sample with and without including estimates of the expected natural gas product recover from implementing controls.  When revenues estimates are included, all of the 127 firms (100 percent) have estimated cost-sales ratios less than 1 percent. The highest cost-sales ratios for small firms in the sample experiencing impacts are largely driven by costs accruing to processing and pipeline firms.  That said, the incremental costs imposed on firms that process natural gas or transport natural gas via pipelines are not estimated to create significant impacts on a cost-sales ratio basis at the firm-level.
Table 7-25	Impact Levels of Final NSPS on Small Firms as a Percent of Small Firms in Sample, With and Without Revenues from Additional Natural Gas Product Recovery

         Without Estimated Revenues from Natural Gas Product Recovery
           With Estimated Revenues from Natural Gas Product Recovery
                                 Impact Level
           Number of Small Firms in Sample Estimated to be Affected
              % of Small Firms in Sample Estimated to be Affected
           Number of Small Firms in Sample Estimated to be Affected
              % of Small Firms in Sample Estimated to be Affected
C/S Ratio less than 1%
                                     123
                                     96.9%
                                      127
                                    100.0%
C/S Ratio 1-3%
                                       1
                                     0.8%
                                       0
                                     0.0%
CS Ratio greater than 3%
                                       3
                                     2.4%
                                       0
                                     0.0%

When the estimated revenues from product recovery are not included in the analysis, one firm (less than 1 percent) is estimated to have sales test ratios between 1 and 3 percent.  Three firms (less than 3 percent) are estimated to have sales test ratios greater than 3 percent.  These results noted, the exclusion of product recovery is somewhat artificial.  While the mean engineering compliance costs and revenues estimates are valid, drawing on the means ignores the distribution around the mean estimates, which risks masking effects.  Because of this risk, the following section offers a qualitative discussion of small entities with regard to obtaining REC services, the validity of the cost and performance of REC for small firms, as well as offers a discussion about whether older equipment, which may be disproportionately owned and operated be smaller producers, would be affected by the final NSPS.

Small Entity Impact Analysis, Final NSPS, Additional Qualitative Discussion
<IP_ADDRESS>.1 	Small Entities and Reduced Emissions Completions
      Because REC requirements of the final NSPS are expected to contribute the large majority of engineering compliance costs, it is important to examine these requirements more closely in the context small entities.  Important issues to resolve are the scale of REC costs within a drilling project, how the payment system for recovered natural gas functions, and whether small entities pursue particular "niche" strategies that may influence the costs or performance in a way that makes the estimates costs and revenues invalid.  According to the most recent natural gas well cost data from EIA, the average cost of drilling and completing a producing natural gas well in 2007 was about $4.8 million (adjusted to 2008 dollars).  This average includes lower cost wells that may be relatively shallow or are not hydraulically fractured.  Hydraulically fractured wells in deep formations may cost up to $10 million.  RECs contracted from a service provider are estimated to cost $33,200 (in 2008 dollars) or roughly 0.3%-0.7% of the typical cost of drilling and completing a natural gas well.  As this range does not include revenues expected from natural gas and hydrocarbon condensate recovery expected to offset REC implementation costs, REC costs likely represent a small increment of the overall burden of a drilling project.
      To implement a REC, a service provider is typically contracted to bring a set of equipment to the well pad temporarily to capture the stream that would otherwise be vented to the atmosphere.  Typically, service providers are engaged in a long term drilling program in a particular basin covering multiple wells on multiple well pads.  For gas captured and sold to the gathering system, Lease Automatic Custody Transfer (LACT) meters are typically automatically read daily, and sales transactions are typically settled at the end of the month.  Invoices from service providers are generally delivered in 30-day increments during the well development time period, as well as at the end of the working contract for that well pad.  The conclusion from the information, based on the available information, in most cases, is that the owner/operator incurs the REC cost within the same 30 day period that the owner/operator receives revenue as a result of the REC.  To the extent there is a lag between a REC expenditures and receipt of revenue from recovered products, we believe the impact on cash flows would be minimal.
      We assume small firms are performing RECs in CO and WY, as in many instances RECs are required under state regulation.  In addition to State regulations, some companies are implementing RECs voluntarily such as through participation in the EPA Natural Gas STAR Program and the focus of recent press reports.
      As described in more detail below, many small independent E&P companies often do not conduct any of the actual field work.  These firms will typically contract the drilling, completion, testing, well design, environmental assessment, and maintenance.  Therefore, we believe it is likely that small independent E&P firms will contract for RECs from service providers if required to perform RECs.  An important reminder is that performing a REC is a straightforward and inexpensive extension of drilling, completion, and testing activities.
      To the extent that very small firms may specialize in operating relatively few low-producing stripper wells, it is important to ask whether low-producing wells are likely candidates for re-fracturing/re-completion and, if so, whether the expected costs and revenues would be valid.  These marginal gas wells are likely to be older and in conventional formations, and as such are unlikely to be good candidates for re-fracturing/completion.  To the extent the marginal wells may be good candidates for re-fracturing/completion, the REC costs are valid estimates.  The average REC cost is valid for RECs performed on any well, regardless of the operator size.  The reason for this is that the REC service is contracted out to specialty service providers who charge daily rates for the REC equipment and workers.  The cost is not related to any well characteristic.
      Large operators may receive a discount for offering larger contracts that help a service provider guarantee that REC equipment will be utilized.  However, we should note that the existence of a potential discount for larger contracts is based on a strong assumption; we do not have evidence to support this assumption.  Since contracting REC equipment is analogous to contracting for drilling equipment, completion equipment, etc., the premium would likely be in the same range as other equipment contracted by small operators.  Since the REC cost is a small portion of the overall well drilling and completion cost, the effect of any bulk discount disparity between large and small operators will be small, if in fact it does exist.
      Although small operators may own the majority of marginal and stripper wells, they will make decisions based on economics just as any sized company would.  For developing a new well, any sized company will expect a return on their investment, meaning the potential for sufficient gas, condensate, and/or oil production to pay back their investment and generate a return that exceeds alternative investment opportunities.  Therefore, small or large operators that are performing hydraulic fracture completions will experience the same distribution of REC performance.  For refracturing an existing well, the well must be a good candidate to respond to the re-fracture/completion with a production increase that merits the investment in the re-fracture/completion.
      There are situations in which operators, large or small, may face constraints in directing captured gas to the gathering lines or pipelines. In these instances, this rule provides the flexibility to combust completion emissions rather than performing a REC.
      Plugging and abandoning wells is complex and costly, so sustaining the productivity of wells is important for maximizing the exploitation of proven domestic resources.  However, many marginal gas wells are likely to be older and in conventional formations, and as such are unlikely to be good candidates for re-fracturing/completion, which means they are likely unaffected by the final NSPS.
<IP_ADDRESS>.2 	Age of Equipment and Final Regulations
Given a large fraction of domestic oil and natural gas production is produced from older and generally low productivity wells, it is important to examine whether the requirements of these rules might present impediments to owners and operators of older equipment.  The NSPS is a standard that applies to new or modified sources.  Because of this, NSPS requirements target new or modified affected facilities or equipment, such as processing plants and compressors.  While the requirements may apply to modifications of existing facilities, it is important to discuss well completion-related requirements aside from other requirements in the NSPS distinctly.
Excluding well completion requirements from the cost estimates, the non-completion NSPS requirements (related to equipment leaks at processing plants, reciprocating and centrifugal compressors, pneumatic controllers, and storage vessels) are estimated to require about $15 million in annualized engineering costs.  EPA also estimates that the annualized costs of these requirements will be mostly if not fully, offset by revenues expected from natural gas recovery.  EPA does not expect these requirements to disproportionately affect producers with older equipment.  Meanwhile, the REC and emissions combustion requirements in the final NSPS relate to well completion activities at new hydraulically fractured natural gas wells and existing wells that are recompleted after being fractured or re-fractured.  These requirements constitute the bulk of the expected engineering compliance expenditures (about $320 million in annualized costs) and expected revenues from natural gas product recovery (about $330 million in revenues, annually).
While age of the well and equipment may be an important factor for small and large producers in determining whether it is economical to fracture or re-fracture an existing well, this equipment is unlikely to be subject to the NSPS.  To comply with completion-related requirements, producers are likely to rely heavily on portable and temporary completion equipment brought to the wellpad over a short period of time (a few days to a few weeks) to capture and combust emissions that are otherwise vented.  The equipment at the wellhead -- newly installed in the case of new well completions or already in place and operating in the case of existing wells -- is not likely to be subject to the NSPS requirement.
Small Entity Economic Impact Analysis, Final NESHAP Amendments
The Final NESHAP Amendments will affect facilities operating three types of equipment: glycol dehydrators at production facilities, glycol dehydrators at transmission and compression facilities, and storage vessels.  We identified likely affected facilities in the National Emissions Inventory (NEI) and estimated the number of newly required controls of each type that would be required by the NESHAP Amendments for each facility.  We then used available data sources to best identify the ultimate owner of the equipment that would likely require new controls and linked facility-level compliance cost estimates to firm-level employment and revenue data.  These data were then used to calculate an estimated compliance costs to sales ratio to identify small businesses that might be significantly impacted by the NESHAP.
While we were able to identify the owners of all but 9 facilities likely to be affected, we could not obtain employment and revenue levels for all of these firms.  Overall, we expect about 81 facilities to be affected, and these facilities are owned by an estimated 42 firms.  We were unable to obtain financial information on 7 (16 percent) of these firms due to inadequate data.  In some instances, firms are private, and financial data is not available.  In other instance, firms may no longer exist, since NEI data are not updated continuously.  From the ownership information and compliance cost estimates from the engineering analysis, we estimated total compliance cost per firm.
Of the 35 firms for which we have financial information, we identified 11 small firms (31 percent) and 24 large firms (69 percent) that would be affected by the NESHAP Amendments.  Annual compliance costs for small firms are estimated at $390,000 (22 percent of the total compliance costs), and annual compliance costs for large firms are estimated at $1.1 million (66 percent of the total compliance costs).  The facilities for which we were unable to identify the ultimate owners, employment, and revenue levels would have an estimated annual compliance cost of $200,000 (11percent of the total).  All figures are in 2008 dollars.
The average estimated annualized compliance cost for the 11 small firms identified in the dataset is $35,000, while the mean annual revenue figure for the same firms is over $116 million, or less than 0.01 percent on average for all 10 firms (Table 7-26).  The median sale-test ratio for these firms is smaller at 0.09 percent.  Large firms are likely to see an average of $48,000 in annual compliance costs, whereas average revenue for these firms exceeds $29 billion since this set of firms includes many of the very large, integrated energy firms.  For large firms, the average sales-test ratio is less than 0.01 percent, and the median sales-test ratio is also less than 0.01 percent (Table 7-26).
Table 7-26	Summary of Sales Test Ratios for Firms Affected by Final NESHAP Amendments
                                   Firm Size
                          No. of Known Affected Firms
                        % of Total Known Affected Firms
                                Mean C/S Ratio
                               Median C/S Ratio
                                Min. C/S Ratio
                                Max. C/S Ratio
Small
                                      11
                                      31%
                                     0.24%
                                     0.09%
                                  < 0.01%
                                     0.93%
Large
                                      24
                                      69%
                                  < 0.01%
                                  < 0.01%
                                  < 0.01%
                                     0.01%
All
                                      35
                                     100%
                                     0.08%
                                  < 0.01%
                                  < 0.01%
                                     0.93%

      Among the small firms, all are likely to have impacts of less than 1 percent in terms of the ratio of annualized compliance costs to revenues (Table 7-27).  These firms represent a very small slice of the oil and gas industry in its entirety, less than 0.02 percent of the estimated 6,427 small firms in NAICS 211 (Table 7-27).

Table 7-27	Affected Small Firms as a Percent of Small Firms Nationwide, Final NESHAP Amendments
                                   Firm Size
                  Number of Small Firms Affected Nationwide
                     % of Small Firms Affected Nationwide
                Affected Firms as a % of National Firms (6,427)
C/S Ratio less than 1%
                                      11
                                    100.0%
                                     0.17%
C/S Ratio 1-3%
                                       0
                                     0.0%
                                     0.0%
CS Ratio greater than 3%
                                       0
                                     0.0%
                                     0.0%

Conclusions for NSPS and NESHAP Amendments
While both the NSPS and NESHAP amendment would individually result in a no SISNOSE finding, the EPA performed an additional analysis in order to certify the rule in its entirety. This analysis compared compliance costs to entity revenues for the total of all the entities affected by the NESHAP Amendments and the sample of entities analyzed for the NSPS. When revenues from additional natural gas product sales are not included, 132 of the 136 small firms (97 percent) are likely to have impacts of less than 1 percent in terms of the ratio of annualized compliance costs to revenues (Table 7-28).
Meanwhile, four firms (3 percent) are likely to have impacts greater than 1 percent. Three of these four firms are likely to have impacts greater than 3 percent. When revenues from additional natural gas product sales are included, all 136 small firms (100 percent) are likely to have impacts of less than 1 percent.

Table 7-28	Affected Small Firms as a Percent of Small Firms Nationwide, Final NSPS and NESHAP Amendments

         Without Estimated Revenues from Natural Gas Product Recovery
           With Estimated Revenues from Natural Gas Product Recovery
                                 Impact Level
           Number of Small Firms in Sample Estimated to be Affected
              % of Small Firms in Sample Estimated to be Affected
           Number of Small Firms in Sample Estimated to be Affected
              % of Small Firms in Sample Estimated to be Affected
C/S Ratio less than 1%
                                     132
                                     97.1%
                                      136
                                    100.0%
C/S Ratio 1-3%
                                       1
                                     0.7%
                                       0
                                     0.0%
CS Ratio greater than 3%
                                       3
                                     2.2%
                                       0
                                     0.0%

The number of significantly impacted small businesses is unlikely to be sufficiently large to declare a SISNOSE.   Our judgment in this determination is informed by the fact that many affected firms are expected to receive revenues from the additional natural gas and condensate recovery engendered by the implementation of the controls evaluated in this RIA.  As much of the additional natural gas recovery is estimated to arise from completion-related activities, we expect the impact on well-related compliance costs to be significantly mitigated. This conclusion is enhanced because the returns to reduced emissions completion activities occur without a significant time lag between implementing the control and obtaining the recovered product unlike many control options where the emissions reductions accumulate over long periods of time; the reduced emission completions and recompletions occur over a short span of time, during which the additional product recovery is also accomplished.
References

Bezdek, R.H., R.M. Wendling, and P. DiPerna. 2008. "Environmental protection, the economy,
and jobs: national and regional analyses." Journal of Environmental Management
86(1):63-79.

Duda, J.R., G. Covatch, D. Remson, S. Wang. 2005. Projections of marginal wells and their contributions to oil and natural gas supplies. Society of Petroleum Engineers Eastern regional Meeting, SPE98014.

Gabriel, S.A., A.S. Kydes, and P. Whitman. 2001. "The National Energy Modeling System: a large-scale energy-economic equilibrium model." Operations Research 49:1: 14-25.

IHS Global Insight. "The Economic Contribution of the Onshore Independent oil and Natural Gas Producers to the U.S. Economy."  Prepared for the Independent Petroleum Association of America.  April 2011.  <http://www.ipaa.org/news/docs/IHSFinalReport.pdf> Accessed July 23, 2011.
Morgenstern, R.D. W.A. Pizer, and J. Shih. 2002. "Jobs versus the environment: an industry-level perspective," Journal of Environmental Economics and Management 43(3):412-436.
Oil and Gas Journal. "Natural Gas Pipelines Continue Growth Despite Lower Earnings; Oil Profits Grow." November 1, 2010.

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.

U.S. Small Business Administration (U.S. SBA), Office of Advocacy. 2010. A Guide for Government Agencies, How to Comply with the Regulatory Flexibility Act, Implementing the President's Small Business Agenda and Executive Order 13272.

U.S. Energy Information Administration (U.S. EIA). 2010. Documentation of the Oil and Gas Supply Module (OGSM). May 2010. DOE/EIA-M06(2010). <http://www.eia.gov/FTPROOT/modeldoc/m063(2010).pdf>  Accessed March 30, 2011.
U.S. Energy Information Administration (U.S. EIA). 2010.  Model Documentation Natural Gas Transmission and Distribution Module of the National Energy Modeling System. June 2010.  DOE/EIA-M062(2010)  <http://www.eia.gov/FTPROOT/modeldoc/m062(2010).pdf> Accessed March 30, 2011.