OIL AND GAS:

Drilling regulators pull double duty as industry promoters

State oil and gas agencies across the country are straining to prevent a flood of new drilling from harming human health and the environment.

But that's not really their job. Or at least not all of it.

Their job is also to promote drilling. And sometimes the law makes that their top priority.

Wyoming regulators are expected to "serve" the industry. Pennsylvania's Bureau of Oil and Gas says its goal is to "facilitate" development. And nearly every other oil and gas agency has a mandate or mission statement establishing increased development as a goal.

"We're there to regulate and promote, if you will," Wyoming Oil and Gas Supervisor Tom Doll explained. "Protecting the environment -- that's part of the task."

Critics of drilling have pointed out in the past that agencies are underfunded and understaffed. But the agencies' pro-development goals could also be among the reasons that state regulators punish violators infrequently and levy minimal fines even when they do (Greenwire, Nov. 14).

"Industry is always reminding you that your job is helping them prosper," said Sid Shapiro, an expert on administrative procedure and regulatory policy at Wake Forest University Law School. "It's hard to blame the agency for doing what the legislature intended."

But regulators say they can foster energy development and still make sure it is done safely.

"We have a dual mission," said Dave Neslin, director of the Colorado Oil and Gas Conservation Commission. "They're both important, and I think we can do both very well."

'No injuries ... no violation'

The explosion nearly knocked Jim Eubanks off his feet and did knock his house partially off its foundation.

Outside, flames were shooting up at an Encana Corp. well about a quarter-mile from his house. His neighbors in a community outside Silt, Colo., also reported feeling a rumbling under their feet that many mistook for an earthquake.

Four months later, an inspector for the Colorado Oil and Gas Conservation Commission issued a "notice of alleged violation" to Encana for having an untrained rig crew that allowed pressure to build before the explosion because "no one on location knew how to unplug it and relieve the pressure."

But when the complaint went to higher-ups in Denver, it got revoked. Encana had explained that the crew did know how to operate the blowout preventer, though that was not what caused the explosion.

A commission memo written later would explain -- "no injuries to people, nor damage to [wellsite] equipment," so there was "no need for a hearing, no rule violation."

That didn't satisfy Eubanks. In a brief phone interview earlier this year, he said the commission ignored its own inspector and "swept it under the rug."

At the time of the explosion, industry representatives had, by law, a guaranteed majority of five seats on the seven-member panel that governs the commission. Eubanks was among many landowners who complained that they didn't get a fair shake from the industry-dominated board.

Three years later, in 2007, such complaints led the Colorado General Assembly to cut industry's number of seats on the commission. It now has three of nine seats.

Colorado is one of many states that guarantee industry seats on the boards that govern the agencies, giving drillers influence over their own regulation enjoyed by few other industries.

The rationale for having company representatives on the panels is that it ensures the agency has guidance from people who understand what it takes to get oil and gas out of the ground.

"I don't see any basis to say that because you have an understanding of the industry, that you can't make a sound judgment about whether the environment is being protected," said Lee Fuller, vice president of government relations for the Independent Petroleum Association of America.

'Not a zero-sum game'

Oil and gas is unusual among industries in that it often has its own dedicated regulatory agency in each state. By contrast, most others get regulated by a department of environmental protection, or in some cases a state health department.

In the West, those agencies are independent "conservation commissions." East of the Mississippi River, they are more likely to be branches of a state environmental agency.

After the revamp, the mission statement of the Colorado Oil and Gas Conservation Commission still says its top priority is "to foster the responsible development of Colorado's oil and gas natural resources."

Contrast that with the mission statement of the environmental agency that regulates other businesses, from tanning salons to landfills -- "The Colorado Department of Public Health and Environment is committed to protecting and preserving the health and environment of the people of Colorado."

Colorado is one of several "oil and gas conservation commissions" in the West. The term "conservation," though, is not used as a synonym for "environmental protection." Instead, it refers to getting all the oil and gas out of a particular area before moving on to the next. That prevents waste, therefore, "conserving" the petroleum resources.

The promotional ethic, though, is not confined to the West. In Pennsylvania, the Bureau of Oil and Gas Management says its mission is to "facilitate the safe exploration, development, recovery" of oil and gas. The agency's website then adds that should be done in a way that will protect "natural resources and the environment." West Virginia law says it is state policy to "foster, encourage and promote exploration for and development" of oil and gas, and "encourage the maximum recovery of oil and gas."

Not every state has ordered its regulators to pull double duty as drilling boosters. New York state's law has nearly identical language to North Dakota and West Virginia but excludes the words "foster, to encourage, and to promote."

And that tracks closely with how the states have handled the shale boom. North Dakota and West Virginia have embraced hydraulic fracturing and horizontal drilling despite concerns that they do not have enough inspectors to enforce rules. New York, concerned about water supplies for New York City, has put shale drilling on hold while regulations are developed.

Colorado's Neslin said his agency's "dual mandates" do not interfere with each other. As proof, Neslin notes that since the 2007 revamp, his agency has cut in half the amount of time it takes to process permits, while decreasing the amount of environmentally unfriendly pits used to store liquids at drill sites. In March, nearly four out of five permit applications were for "closed-loop" systems that don't use pits. In Garfield County in March, all but one of the 19 drilling applications were for such systems.

"It's not a zero-sum game," Neslin said.

But if Neslin were to neglect the mission to "foster" development, there are industry supporters in the state Legislature ready to remind him. In 2008, a legislator demanded that the governor fire Neslin for a perceived slight to the industry.

Neslin had told the Rocky Mountain News that he expected "the level of activity will moderate next year" because of economic conditions. State Rep. Steve King, a Republican from western Colorado, fired off a letter to then-Gov. Bill Ritter (D) saying Neslin's remark showed "staggering indifference" to loss of jobs accompanying a slowdown in the industry.

Neslin was backed up by members of the commission, and he later moved from being acting director to permanent director. The incident, he said, did not affect how he did his job. He allowed that it was a difficult time for his newly recast agency, but said, "You do what you think is right."

Judy Jordan witnessed the overhaul of Colorado regulation from Rifle, Colo., where she was the "oil and gas liaison" for Garfield County government.

When she arrived in 2007, she said, "It was abysmal, there were staff members who were very callous toward citizen's complaints." After the new rules passed, the agency hired more staff. Many of them, she said, "were very conscientious and responsive to complaints." But as industry pushed back on the new rules, she saw progress bog down and sometimes saw some of the previous attitudes return.

"There were some folks who had trouble making a shift with the new legislation back in 2007," Jordan said.

Jordan was pushed out of her job in Garfield County earlier this year after she was criticized by the local oil and gas company and an industry-backed candidate ousted an incumbent county commissioner who was critical of drilling (Greenwire, Nov. 28).

In early 2008, Jordan watched a "kid on a backhoe" violate Colorado's rules governing pits. A landowner had called to complain that a company was filling in a pit on her land that had been used for drilling, and they were doing it incorrectly. It was rare that Jordan got a call about an incident that was still in progress, so she hurried over.

Jordan saw trash, like wallboard, getting mixed in with the dirt. The equipment operator was also mixing dirt with a liquid in the pit that had a rainbow sheen. She suspected there might be petroleum residues in the pit, also not allowed.

It isn't often that oil and gas officials witness a violation. The agency could have taken a statement from Jordan, a lawyer and former regulator who has experience with oil and gas.

"How many times do you get someone like me who sees this happening?" Jordan said in an interview.

But when she called the state, nothing happened. The agency sent an inspector, who went to the site and took samples. She never got results. There is no listing of the complaint in agency records.

The landowner had tests done, found petroleum residues -- "hydrocarbons" -- and is now suing the company.

Neslin, though, said that there is a process that would have allowed Jordan or the landowner to bring a complaint before the commission.

Industry experience required

In the wake of the massive 2010 BP PLC oil spill in the Gulf of Mexico, concern about conflicts of interest led to the dismantling of an entire federal agency, the Minerals Management Service. One of the biggest conflicts highlighted was what amounted to a "revolving door" between business and industry.

"Of greatest concern to me is the environment in which these inspectors operate," wrote Mary Kendall, acting inspector general at the Interior Department in a report issued while the oil was still billowing from the Gulf floor, "particularly the ease with which they move between industry and government" (Greenwire, May 25, 2010).

But in West Virginia, the revolving door isn't a problem, it's a job requirement.

Well inspectors in West Virginia must have three to six years experience in the industry. Pennsylvania requires some, but not all, of its inspectors to have experience in the business. And in many other states it is common for inspectors to come from industry or get hired by a drilling company.

Randy Huffman, secretary of the West Virginia Department of Environmental Protection, wants the industry-experience requirement lifted.

In an interview, he said it makes his agency compete with industry for hiring, needlessly limits the pool of candidates and could raise concerns about whether inspectors are impartial.

"If I said coal inspectors should have six years of experience in the coal industry, I'd be run out of town," Huffman said.

An overhaul of the state's drilling laws drafted for the upcoming legislative session proposes reducing the amount of industry experience required to two years.

Refereeing property disputes

In addition to navigating conflicting mandates, oil and gas inspectors also frequently find themselves navigating property disputes between landowners and drillers. Complicating matters further, the disputes are often about the same patch of ground.

Companies often acquire rights to oil and gas below ground without owning the land above. In legal terms, that means the "surface estate" and the "sub-surface estate" are "severed," creating "split estate." States generally require that landowners allow "reasonable" access

And most states place the property rights of the oil and gas owner above the owner of the "surface" -- often a farmer or rancher. So, beyond monitoring technical compliance and trying to ensure drillers are not polluting, landowners often call on inspectors to help enforce their property rights.

When Marty Whiteman bought his first hay farm outside New Martinsville, W.Va., 20 years ago, he did not want the "minerals" underneath. The worst that could happen, he thought, was that a coal mine might be dug under his field.

What did happen wasn't a coal mine, but drilling in the Marcellus Shale. Chesapeake Energy Corp. acquired the rights to the minerals -- shale gas -- under his farm.

Whiteman said company representatives told him the well would be placed on a small, out-of-the-way site and would not interfere with his hay crop. That would have been possible with the small pump jacks that dot the hillsides in these parts. They could fit in the average garage. He recalls that they said it would even help his farming because a new gravel road would improve the road access in and out. So, he signed the company's agreement.

Now, Whiteman feels duped.

Chesapeake Energy built its 10-acre well pad, he said, not in an out-of-the-way corner but right in the middle of his hilltop hayfield. Last year, he had to buy hay to feed the goats on his second small farm, where he lives. And, combined with a property dispute with a neighbor, he has lost nearly all access to his farm. The new road usually has a locked gate across it, and Whiteman doesn't have the key.

"We haven't farmed that ground for four years," said Whiteman, sitting in the living room of his home, which is ringed by well pads on the surrounding hills. "They never told us it was going to affect our farming."

Chesapeake officials say they have dealt fairly with Whiteman from the start.

"Throughout 2007 and 2008, Mr. Whiteman received no less than eight separate checks from Chesapeake for agreements with us that he voluntarily signed," said Chesapeake spokeswoman Stacey Brodak. "These agreements fully compensated him for any and all use of the surface of the property. The location we occupied was, at most, 5 acres in a corner of his 79-acre farm. Because of reclamation, that disturbance is minimized."

Except for the size of the well-pad, Whiteman's version of events doesn't disagree with Chesapeake's. Chesapeake's statement doesn't deny that the well pad was put in the middle of his hayfield. Whiteman doesn't deny that he has signed additional agreements, though he said he felt there was little choice. But Whiteman says he was treated unfairly, and Chesapeake says he wasn't.

Brodak noted that Whiteman should have the same access he has always had to his land. The new road was built onto his property through the neighbor's property. Whiteman traces the dispute with his neighbor to his criticism of drilling.

"Those landowners have a key to the gate, and granting the Whitemans access to that property would have to be an agreement reached between Whiteman and his neighbor," Brodak said.

Whiteman is suing Chesapeake Energy, accusing the company of dumping drilling waste into unlined trenches onto his property during drilling. Chesapeake has filed a response saying that all of its work at the drill site was done according to the plans it submitted to state regulators.

When he called the state, Whiteman said he felt like what he got was excuses. State officials, he said, are pursuing the economic benefits of drilling while leaving people like him to pay many of the costs.

"The state is pro-gas," he said. "They're bought and paid for. That's the only way to put it."

Huffman, the state's top environmental regulator, acknowledged that the state is playing catch-up, regulating modern Marcellus Shale drilling sites with regulations drawn to deal with small shallow wells. Shale drilling requires millions of gallons of water to fracture wells that sit on multi-acre well pads that become an industrial facility during drilling.

"We have seen tremendous improvement," Huffman said. "Just like the companies, it took us a little while to get our act together, too."

Click here to read Jim Eubanks' complaint about the explosion and the explanation of why state officials decided it was not a violation.

Click here to read the notice of alleged violation issued regarding the explosion.

Click here to read the state's letter explaining why the notice was revoked.

Click here to read the Interior IG's report on conflicts of interest among offshore drilling regulators.

Click here to read Marty Whiteman's lawsuit.

Click here to read Chesapeake's response.