‘Drill, buddy, drill!!!!’ Inside FERC’s $40M Rover fine

By Mike Soraghan | 03/24/2022 07:13 AM EDT

The Federal Energy Regulatory Commission is seeking a large fine years after a massive spill tainted with diesel fuel. Critics say the pipeline builder still comes out ahead.

Crews work in 2017 to remove diesel-laced pipeline drilling fluid, often referred to as "drilling mud," from a forested floodplain described as having previously been a "pristine" wetland near Canton, Ohio.

Crews work in 2017 to remove diesel-laced pipeline drilling fluid, often referred to as "drilling mud," from a forested floodplain described as having previously been a "pristine" wetland near Canton, Ohio. Ohio EPA photo obtained by Ohio Sierra Club through open records request.

Tunneling under the Tuscarawas River was not going well.

It was early April 2017, and construction on the Rover pipeline across Ohio had just begun. At a worksite near Canton, Ohio, a drilling device was stuck, probably caked with mud. And drilling fluid that should circulate back to the surface was instead disappearing underground.

So the night foreman of a contractor crew started adding diesel fuel to the mix to lubricate the drill and get it unstuck, according to an enforcement report from the Federal Energy Regulatory Commission. Other workers followed his lead.


It’s an old trick. It was also against the law.

The drilling fluid — about 2 million gallons of it — later surfaced in a pristine wetland across the river. The mud was at least a foot and laced with the toxic fuel.

Now, FERC is seeking a $40 million fine from Rover’s developer, Energy Transfer LP (Energywire, Dec. 17, 2021). In its report issued late last year, agency enforcement staff said the company fostered a speed-justifies-the-means attitude and passed it on to its roughly 12,000 contract employees, all the way to the laborers in the mud pits.

“These violations were the product of a corporate culture that favored speed and construction progress over regulatory compliance that Rover pressed upon its contractors,” FERC’s enforcement staff wrote.

Energy Transfer has blamed “a rogue employee” of a contractor for adding the diesel. In a filing this week, the company argued it cannot be held liable for the actions of its contractor.

“What the Report does reveal,” company attorney William Scherman wrote in the filing this week, “is a stunning rush to judgment in a desperate attempt to blame the innocent for the alleged deliberate misdeeds of third parties multiple steps removed from those who stand charged.”

Rather than pressure to speed up drilling, the filing suggested the contract crew was in disarray because of interpersonal problems, including rumors that another foreman was “having an affair with the wife” of one of his workers.

Either way, critics say, the failures laid out by FERC investigators show the agency has little ability to prevent environmental damage once it approves a project.

It took four years of investigation before the agency sought the $40 million fine last December. That case appears likely to be tied up in litigation for months or longer. Meanwhile, the pipeline has been pumping gas for more than three years, netting at least $1.4 billion. For Energy Transfer, critics say, the $40 million fine will simply be the cost of doing business.

“This strategy worked for them,” said Cheryl Johncox, who fought Rover as an Ohio-based organizer for the Sierra Club’s Beyond Dirty Fuels campaign. “These companies came in and made promises they couldn’t keep.”

Carolyn Elefant, a former FERC attorney who now represents landowners in the path of pipelines, said the report shows the problems with the agency’s custom of deferring to the companies they’re expected to regulate.

“What’s truly frustrating is they promise the world to these communities, but as soon as they get approved, all the promises they made fade away,” she said. A FERC spokesperson declined to comment because the enforcement case is pending.

FERC enforcement will be even weaker, she said, if Energy Transfer’s defense succeeds and the agency cannot hold pipeline companies liable for the actions of their contractors. She called that idea “ridiculous” because FERC has no jurisdiction over contractors.

There may be more projects like Rover on the horizon for FERC. EQT Corp., the largest gas producer in the United States, recently proposed replacing coal globally by quadrupling U.S. natural gas exports by 2030. The proposal says 6,500 miles of new pipelines would be needed.

Energy Transfer is one of the country’s biggest pipeline companies. Based in Dallas, it has more than 100,000 miles of pipelines and numerous petroleum facilities. Many of its construction projects in recent years have led to protests, legal fights and criminal investigations. It also is politically well-connected.

Energy Transfer Executive Chair Kelcy Warren was one of former President Trump’s biggest financial supporters (Energywire, Sept. 23, 2020). After the company netted more than $2 billion related to last year’s Texas blackouts, Warren sent $1 million to Texas Gov. Greg Abbott (R) (Energywire, Jan. 21).

He’s not as friendly with Democrats. He’s currently suing former Rep. Beto O’Rourke, a Democrat challenging Abbott’s reelection, for accusing him of corruption and “extortion” (Energywire, March 9).

Construction of the Rover Pipeline began in the wake of massive protests about another Energy Transfer project, the Dakota Access pipeline. Rover was an early entrant in the race to export the bounty of the shale gas revolution from the Marcellus gas fields of West Virginia and Pennsylvania. That race included other pipeline projects, including Nexus, Atlantic Sunrise and another Energy Transfer line, Mariner East 2.

Rover now runs 711 miles across Ohio, from West Virginia to southern Michigan. The system of twin gas pipelines between 24 and 42 inches in diameter delivers gas from the Marcellus Shale to Midwest and Canadian markets. It cost about $6.7 billion to build, about 50 percent higher than initial estimates.

‘The most advanced technology’

The muck from the spill was a foot or more deep in many locations.
The muck from the spill was a foot or more deep in many locations. | Ohio EPA

Before construction began, Energy Transfer assured people along the route it would be built with “the most advanced technology” to make it safe and environmentally friendly.

Next to a bucolic photo of a red barn, a Rover promotional website told readers, “Protecting landowner interests and the local environment is a top priority of the Rover Project.”

The company had a different pitch for the business world. Joey Mahmoud, Energy Transfer’s executive vice president of engineering and construction at the time, speaking to prospective customers at a 2016 meeting, called the project a “race to market,” according to the FERC report. Mahmoud left Energy Transfer and the Rover project in 2017.

The company signed a “time is of the essence” contract with Wisconsin-based Precision Pipeline LLC that prioritized meeting a deadline of November 2017. It allowed for no “slippage” on the timeline, unless Energy Transfer agreed. In its response filed with FERC this week, Energy Transfer said such time-is-of-the-essence language is standard in contracts.

The timeline had to be compressed because approval from FERC had taken longer than the company expected. So 500 miles of the project needed to be built in four months. Energy Transfer said in its filings that the deadlines were achievable.

Pressure started early, according to FERC’s enforcement staffers. Their report lays out email and text exchanges between the vice president of the prime contractor on Rover and Bill Colson, head of Pretec Directional Drilling LLC, the directional drilling contractor, on March 18, 2017. FERC had approved construction 15 days before, but boring under the river hadn’t begun.

The head of the prime contractor, Precision Pipeline, told Colson he was worried that Energy Transfer’s Mahmoud “will blow a gasket at some point.”

Attempts to reach Colson yesterday were unsuccessful.

The pressure was sometimes delivered in crude terms, according to FERC’s enforcement report.

“I don’t care what we have to do,” Colson told a project manager in a text message, according to the FERC report. “I know everything takes time, but I’m getting my ass tore up.”

When a superintendent told Colson the crew was working to “button up” some environmental and safety matters, Colson replied, “Do they not understand or what?”

He added later, “Drill, buddy, drill!!!!”

They got the drill moving that day. But within hours, something went wrong. The bentonite fluid mixture that is supposed to be pumped down the hole to cool the drill bit, then come back up the same hole, wasn’t coming back. That meant the fluid, called “drilling mud,” was likely flowing into a fracture in the earth.

That meant the brown fluid could be flowing into groundwater. Or it could spurt out of the ground some distance away. Such spills are called “inadvertent returns,” or “frac-outs.”

Still, they kept going for weeks, hauling in hundreds of thousands of pounds of a clay mixture used to make more drilling mud.

Then, on April 2, 2017, the crew “began using unlawful measures to lubricate the drill in order to keep up with job progress demands,” FERC’s report says.

To unstick a clogged “reamer” on the drill, the night foreman of the contract crew started pumping in toxic diesel fuel from a 2,000-gallon tank at the site. Others followed suit. One compared it to pumping gasoline at a gas station.

At least seven contract employees at the site pumped in diesel, according to FERC enforcement officials who interviewed the workers.

Energy Transfer, in its filing this week, said the accusation that it pressured contractors to cut corners was “pure bunk.” The company said the crew had been ahead of schedule. What pressure crew members were under, the company said, stemmed from tensions between crew members themselves.

“[R]umors were rampant among the crew members that the Day Crew Foreman allegedly was having an affair with the wife of the Day Crew Driller,” the company’s filing said. The driller is a senior member of the crew. In a footnote, testimony indicated the foreman confirmed the rumors, telling investigators, “I had — yes, I had an affair with his wife.”

Diesel flashpoint

Finally, nearly four weeks after drilling started, the FERC report said an inspector found the mud in the forested floodplain across the river described as having been a “pristine” wetland prior to the contamination. The area was reportedly covered in 1 or 2 feet of muck. Experts brought in after the spill estimated the fluid would have been flowing into the area for about four days.

FERC officials shut down drilling under the Tuscarawas River temporarily and barred the Rover project for five months from starting new horizontal drilling in eight other areas. It also ordered Rover to double the number of environmental inspectors on the project and launched a formal agency investigation.

About the same time the drilling was shut down, state regulators started getting tips that diesel was mixed into the mud. Near the end of May 2017, Ohio environmental regulators confirmed that their tests showed diesel.

Drilling mud, on its own, is not toxic. But it can smother plants and animals when it spills underground and can turn drinking water from wells brown.

Diesel, however, is toxic and contains carcinogens such as benzene. It was not on a list of additives FERC had approved for Energy Transfer’s use on the project. In addition, diesel has been a flashpoint in the oil and gas debate. When Congress in 2005 blocked EPA from regulating aspects of hydraulic fracturing, it said using diesel in the underground operation could still be regulated.

After the spill was discovered, Energy Transfer’s statements to the public called such frac-out spills routine, and insisted the drilling mud was nontoxic.

When diesel was detected, the company said it was a small amount and didn’t necessarily mean diesel had been added to its drilling fluid. As to the source, Chris Sonneborn, listed as a senior company vice president for engineering with Energy Transfer’s Rover subsidiary, suggested to FERC it could have been sabotage.

“It could have been the deliberate or malicious act of individuals opposed to the project,” Sonneborn said in an August 2017 letter to the agency. FERC’s report, released in December, said the company had not retracted the accusation of sabotage. In its filing this week, the company said the accusation was “plausible” because an opponent had been spotted in the area near the spill.

Energy Transfer spokesperson Vicki Granado said the company learned “many months later” that the rogue employee of a contractor admitted adding the diesel “on his own volition,” then tried to hide it.

“We look forward to the opportunity to present these facts in court where we are confident they will be correctly ruled on,” she said in a statement to E&E News.

Granado said the wetland has been cleaned up and restored “to pristine conditions.” Environmentalists such as the Sierra Club’s Johncox say the ecosystem will still take years to recover from the damage and cleanup.

Other alleged violations

The five commissioners who govern FERC have not ruled on the charges outlined in the report but have ordered the company to explain why it shouldn’t have to pay the fine sought by staff. The case is before an administrative law judge.

About 50 Energy Transfer employees worked for its Rover subsidiary during construction, and up to 1,800 employees may have played a role in the project, according to FERC documents. Those employees rarely worked in the field, Granado said. Company officials say none of them knew about pumping diesel fuel underground.

Of the 11 civil penalty cases FERC resolved last year, only one fine was higher than $40 million, a market manipulation case. Most fines were less than $1 million.

The $40 million fine levied by the enforcement staff is the largest levied against Rover, but regulators have alleged many other violations.

Ohio officials went to court seeking $2.3 million in fines for nearly 20 spills of contaminated water, failure to obtain required permits and improperly disposing of the diesel-laced fluid. The case is still pending.

Reuters reported in 2018 that Energy Transfer racked up more than 800 state and federal permit violations while building Rover along with Mariner East 2, which stretches across Pennsylvania. Four other similar pipeline projects, the news service found, averaged 19 violations each during construction.

And FERC’s enforcers are also seeking a $20 million fine in connection with the demolition of a historic house near a Rover compressor station. Agency officials say that Energy Transfer lied by telling FERC they were trying to preserve the house while secretly buying and demolishing it.

Energy Transfer acknowledges it told FERC it was trying to ensure “no adverse effects” on the house. But it contends that the house was of little historical value, and after buying it the company realized it wouldn’t work as an office.

The company’s financial filings with FERC show the benefits of building Rover quickly. Since starting operations, the pipeline has netted nearly $1.4 billion. Brad Williams of Spitfire Energy Advisors in Houston said there’s significant incentive for pipeline builders to finish projects quickly, start pumping gas and create cash flow.

“Being early to start can be a huge financial advantage,” Williams said. “That’s always an incentive.”

The $40 million fine would represent the revenue Rover pipeline takes in, on average, every 18 days, according to the filings. It is far less than what the company has already spent dealing with the incident. Energy Transfer told tax officials the spill and subsequent delays cost about $229 million and increased regulatory costs by $94 million.