This story was updated at 10:23 a.m. EST.
SandRidge Energy Inc., the financially troubled oil producer focused on earthquake-prone northern Oklahoma, is defying a state directive to shut down six disposal wells linked to quakes.
"They are in operation, and we are preparing a case" to formally shut the wells, Matt Skinner, spokesman for the Oklahoma Corporation Commission (OCC), said Friday. Skinner said SandRidge representatives told OCC they would "respectfully decline" to comply.
The case being prepared by officials at OCC, which regulates oil and gas activity in the state, sets up a potential showdown on whether the commission has the power to halt activities thought to be triggering earthquakes.
The agency told SandRidge earlier this month to shut down six wells in the north-central part of the state near the Kansas line. It was a reaction to the strongest series of quakes in years. OCC also told the company to cut back disposal at more than 40 others by 25 to 50 percent (EnergyWire, Dec. 4). Other companies were told to cut back, and one other company was told to shut a well, but SandRidge operations were the most broadly affected.
The OCC "directives" are voluntary, but if a company refuses, OCC staff can take formal legal action against the company.
State records obtained by EnergyWire show that the wells directed to shut down were still injecting wastewater past OCC's Dec. 9 deadline.
SandRidge spokesman David Kimmel responded to an EnergyWire question by saying, "We're currently working closely with the OCC to resolve this issue."
The legal action would be a formal request to the three elected commissioners who govern the agency to change the relevant permits. It would ask them to require the company to stop injecting wastewater in the six wells, at least temporarily.
Commission hit by cuts to staff, budget
The commission staff has been hit by budget cuts, and commissioners in the past have questioned whether they have the authority to crack down on disposal wells because of earthquakes. But at a fall legislative hearing, one of the three commissioners, Dana Murphy, asserted that they do have authority.
Commission officials have also indicated that proving a case might be hindered because there is currently no state seismologist at the Oklahoma Geological Survey (OGS) to explain the science behind the commission's actions.
"We are very concerned we don't have seismologists we can consult," Skinner said earlier this month. OGS Director Jerry Boak has said he has more staff now than before his two seismologists left. But the agency has not replaced top seismologist Austin Holland EnergyWire, Sept. 24).
Commissioners are statewide elected officials and get most of their contributions from the oil and gas industry. But commissioners say that would have no effect on how they carry out their judicial duties.
State Rep. Cory Williams (D) of Stillwater, one of the most active legislators on the earthquake issue, said SandRidge's defiance highlights the limits of industry cooperation.
"It's imperative that we pass legislation enabling the corporation commission to make these kind of decisions in the field, not wait on voluntary compliance," Williams said. "We need a stick."
Financial woes for SandRidge
Numerous other companies have been told to curtail operations and even shut wells. But SandRidge is considered the most vulnerable to such actions. The company's operations are focused in the Mississippi Lime play underlying earthquake-prone north-central Oklahoma and southern Kansas, and it has few assets outside the area EnergyWire, Nov. 17).
Disposal is not a side issue for oil producers. Drilling can produce as much wastewater as it does oil, often much more. The Mississippi Lime play, where SandRidge has concentrated its operations, yields far more water than conventional production. Producers must have a place to put the toxic, briny fluid.
In a November regulatory filing, SandRidge said that if regulators order it to shut down disposal wells or reduce injection volumes, the company might have to shut down production wells. That, the company said, could "adversely affect the company's business, financial condition and results of operations."
SandRidge had abided by all of the commission's previous earthquake-related requests. But it has been limping financially for some time. Founder Tom Ward was ousted in 2013 after a monthslong dispute with an activist investor, leaving behind a fiscal mess. Then came a price slump that has battered the whole industry and has no end in sight.
SandRidge reported $4.6 billion in debt in July, which it has struggled to pay down. That hasn't helped its ailing stock price, which has remained at less than $1 per share since June 26, putting the company at risk of being delisted from the New York Stock Exchange (EnergyWire, Nov. 17). The stock closed Friday at 23 cents.
SandRidge's subsidiary drilling contractor, Lariat Services Inc., laid off 265 people and closed its Odessa, Texas, field office in February. SandRidge laid off 132 more employees in April, roughly one-fifth of its workforce.
A Tulsa company, Marjo Operating Co. Inc., challenged an OCC directive to cut back operations in September. But OCC and the company reached an agreement, heading off formal enforcement (EnergyWire, Dec. 7).
The Sierra Club and other groups have also threatened to sue SandRidge under federal environmental laws. The groups warned SandRidge and three other companies in November that they would sue if the companies didn't reduce injection volumes (EnergyWire, Nov. 3).
Scientists have known for decades that injecting wastewater deep underground can lead to earthquakes. Under the right circumstances, the fluid can seep into faults and change the pressure, essentially lubricating them.
Favorably aligned faults and production methods that create uniquely large volumes of wastewater appear to have combined to create Oklahoma's unprecedented swarms of man-made earthquakes.
Last year, the state had 585 earthquakes of magnitude 3 or greater. This year, that number has soared past 850. In November, the Medford and Cherokee areas were rocked by two magnitude-4.7 earthquakes within two weeks of each other, prompting the latest move by OCC.
The two quakes were the largest since the aftershocks of the state's largest-recorded quake, a magnitude-5.7 quake near Prague in 2011 that destroyed 16 homes and injured two people.