N.M. is loosening drilling rules, bucking trends and riling ranchers

TATUM, N.M. -- The bare patch is pale gray, gravelly and about the size of a baseball infield. It's been 60 years since an oil well was drilled here, the waste washed into a pit, then buried. Nothing has grown here since.

"That soil there is dead," growls Carl Johnson, a rancher who owns the land around here for miles, pointing over a box of bullets on the dash. "It'll still look like that in 60 years."

He spins the wheel of his mud-splattered Ford Super Cab pickup and crunches to a stop at another site that looks similar, except for a pile of dirt on the side, and his stern mood lifts a bit.

"There'll be something growing there in two years," Johnson says. "It won't be good. But in 10 years there will be grama grass and weeds."

The pile is scraped-off topsoil, which will be put back. More importantly, no waste or drill cuttings were buried next to the oil well, which was recently removed. Drill cuttings were instead diverted to big steel tanks and carried off to a landfill.

That's the way things must be done under New Mexico's strict "pit rule." In places like Tatum, where groundwater is near the surface, drillers can't use pits and must use steel tanks as part of a "closed loop" system.

But those strict requirements will likely end soon. Bucking a national trend toward tightening rules, New Mexico oil and gas officials are de-fanging the pit rule at the request of the oil and gas industry.

Drillers here have despised the rule since it was enacted in 2008. They said it added as much as $250,000 to the cost of drilling a well, driving many companies across the nearby border into Texas, which has no pit liner requirements.


"It swung the pendulum so far to the protective side that it went beyond what was needed," said Wally Drangmeister, spokesman for the New Mexico Oil & Gas Association.

The oil and gas industry put more than $1 million into the 2010 campaign of New Mexico Gov. Susana Martinez (R), who campaigned on rolling back the pit rule. According to data from the National Institute on Money in State Politics, nearly $1 in every $7 she raised came from oil and gas, making it the top industry among her funders.

Martinez appointed two of the three members of the state's Oil Conservation Commission, which has held several daylong sessions to hammer out changes to the rules but has not finished its work (EnergyWire, May 18). It is to meet again today.

Most states swept up in the nation's oil and gas boom in recent years have moved toward stricter rules. Colorado, Ohio, Pennsylvania and even Texas have all enacted new sets of rules that were at least promoted as reforms to outdated regulatory systems.

Environmental groups and ranchers such as Johnson are fighting to keep New Mexico's pit rule intact, saying tanks and closed-loop systems have kept drilling wastes out of soils and groundwater. It is a fight they expect to lose.

'It took people awhile to get used to it'

Because of the pit rule, the landscape between Johnson's ranch and the oil town of Hobbs is dotted with neat rows of large green tanks lined up on drill pads next to pumpjacks.

But cross the long, straight border into Texas, and as the pink and yellow hues of the New Mexico landscape fade to brown, the tanks disappear.

On a clear day last month outside Midland, the Academy #205 rig gushed water and drill cuttings into a big U-shaped pit. Once the crew is done drilling, the water will be left to evaporate. The cuttings and whatever's left will be buried under the ranchland.

Texas has no pit liner requirements. Ben Shepperd, president of the Permian Basin Petroleum Association, explained to a small crowd of visiting reporters over the din of the rig that rigs streamed across the state line when New Mexico enacted its pit rule.

"You could see companies packing up and moving," he said. "It was extremely expensive, especially for small companies. It took people awhile to get used to it."

But they did, Shepperd said, and now he expects Texas drillers will have to get used to something similar in the not-too-distant future.

"It's working in other parts of the country. It probably will come to Texas," he said.

Most other states are not banning pits (most do require liners) or requiring closed-loop systems. But some state oil and gas officials are strongly encouraging them.

In a 2011 staff report, Dave Neslin, then-director of the Colorado Oil and Gas Conservation Commission, enthusiastically reported that 91 percent of new wells in Weld County, the heart of Colorado's Niobrara Shale drilling, were employing closed-loop systems.

In Pennsylvania, some drillers are using closed-loop systems to stay on the good side of their neighbors in the northeastern part of the state. Anadarko Petroleum Corp. even sought and received state permission to dig up buried cuttings from a dozen well sites and remove them. Now, all of its operations are using closed-loop systems.

"We want to say we haven't buried anything here," Steve Woelfel, Anadarko's drilling operations manager in Appalachia, told the Philadelphia Inquirer in 2011. "It always could be a risk. It could come back to you."

Rig numbers don't show flight

The top talking point of pit rule opponents is that rigs stampeded across the state line after the pit rules were imposed.

"Rigs were fleeing New Mexico because of the pit rule," oilman and former New Mexico Republican Party Chairman Harvey Yates Jr. told an audience in New Mexico in October, according to the Alamogordo Daily News. "We can calculate the loss to New Mexico if we make an assumption -- a conservative assumption and a Republican assumption, if [then-Gov. Bill] Richardson had not tinkered with the problem -- drill rates and gas production would have simply stayed the same."

But statistics don't bear out the assertions that the pit rule caused a mass migration of rigs out of New Mexico.

The number of rigs in New Mexico actually increased briefly after the pit rule was enacted in June 2008. The monthly rig count, compiled by oil field services company Baker Hughes Inc., started to drop in New Mexico, Texas and the country as summer turned to fall as the economy spiraled downward. New Mexico's rig count fell 55 percent from May 2008 to May 2009; in Texas it fell more, 62 percent.

As the economy crept back, so did the rig count. By 2011, Texas and New Mexico were back to about the same place they were before the pit rule and before the economy tanked.

Industry officials, though, say that activity should be compared more narrowly within the Permian Basin, which includes three counties in New Mexico and many more across the border in West Texas. Those figures show that drilling went up on both sides of the state line after the pit rule was enacted, then fell in tandem in 2009. By mid-2010, drilling had recovered to about where it was before the crash.

But it then leveled out on the New Mexico side of the Permian, while in Texas it continued to surge. Rig counts compiled by the Independent Petroleum Association of New Mexico indicate in mid-2010 there were about four times as many rigs on the Texas side. By the end of 2011 the ratio was heading toward 6-to-1.

"We've never said that there won't be any development in New Mexico because of the pit rule," said the New Mexico Oil & Gas Association's Drangmeister. "We're saying it would have happened at a faster rate."

And that hints at what some say is the real issue -- large-scale hydraulic fracturing.

"What we lost in New Mexico is horizontal drilling for gas," Yates said.

In West Texas, "multi-stage" fracture treatments are being used to revive production from previously ignored Permian Basin formations, similar to the shale drilling that has revolutionized the country's oil and gas production. Those "frack jobs" produce a lot of "flowback" water that is most easily stored in pits.

Gwen Lachelt, who has fought dilution of the pit rule for the environmental group Earthworks, says interest in new hydraulic fracturing techniques is driving the changes. Rolled into industry's proposal is a request to let drillers use one large pit for multiple wells that employ high-volume, high-pressure hydraulic fracturing. Lachelt calls them "frack lakes."

"The industry wants to get rid of the pit rule so it can build frack lakes and usher in a new era of unregulated oil and gas development," Lachelt said.

New Mexico officials started looking at pits in 2006. The rules, drafted after 17 hours of hearings, required different levels of protection depending on how close and vulnerable groundwater supplies are to the water used in the well. In practice, Drangmeister says, almost all pits are banned and almost all oil drilling must use closed-loop systems.

The pits or tanks hold briny water, far saltier than seawater, which is mixed with drilling "muds" that cool and lubricate the drill bit. The mud also maintains pressure to prevent blowouts.

The mud can contain chemical additives to inhibit corrosion, acids, cements, gels, polymers, organic compounds and metals. Also, whatever the bit drills through will be pumped up with the mud and into a pit.

For decades, pits were simply bulldozed over when the well was finished, leaving whatever materials they contained to seep into the soil and potentially the groundwater.

The problems with that can be seen on Johnson's ranch, where cattle drink from stock ponds that draw from groundwater just a few feet below the surface. Those cattle wind up in hamburgers and steaks in supermarkets and restaurants.

"There's every kind of chemical out there," Johnson said. "All this groundwater strata is the same."

The state first required liners in 1992. In 2003 the state enacted another set of rules, which officials found to be too broad and lacking in specifics. The pit rule was drafted to fix those problems.

Johnson scoffed at the assurances industry attorneys make at hearings that pit liners protect groundwater (to wit: "That's bullshit"). He said he has watched them get laid down by low-skilled laborers in high winds. He said they're ripped full of holes as crews install them on the windy range. Then, they tear even more when heavy equipment is used to roll the cuttings into place for burial.

State officials documented about 400 incidents of contamination from leaking pits. Oil and gas officials said that finding overstated the problem, arguing that many of the leaks were from something other than pits.

Oil and gas companies began seeking to reverse the rule almost as soon as the New Mexico Oil Conservation Commission adopted it. They got their chance when Martinez won.

Industry submitted a proposal last year to allow companies to use lined pits instead of tanks when the risk to groundwater is small, increase the level of salt allowed in drilling fluids buried on-site and streamline the permitting process.

A victory undone?

Johnson calls himself "an irritating old bastard," but if a Hollywood producer wanted an authentic-looking rancher, he couldn't do better than the 74-year-old cattleman. The third-generation New Mexico rancher wears a dusty brown cowboy hat set atop short white hair and a Carhartt jacket.

Warning of the dire consequences of a second term for President Obama in a Western twang, he doesn't sound like the type you'd expect to link up with environmental groups like Earthworks' Oil and Gas Accountability Project. But he sees oilmen as a bigger threat than lefty green groups.

"I hate them sum-bitches," he says. "These oilies, the only time they're not lying is when they're not talking."

Johnson owns thousands of acres of the yellow and green range around here (he doesn't like to talk about how much), and his family members own more. But like many ranchers, he owns almost none of the oil underneath.

So the law compels him to allow oil companies to set up shop on his ranch and drill.

It's a recipe for conflict. Explaining the way the "oilies" treat his land, he stomps the brake and comes to a stop on the hardpan road. He turns and holds up a finger.

"I own this land," he spits. "I have a deed." His eyes narrow and his lips purse. "I can't do what they do."

Four years ago, he thought he and his fellow ranchers won a measure of victory in the pit rule. Now, he expects that victory to be undone.

"Our pit rule was the best in the country," he says, looking over the steering wheel across the expanse of his land. "I'm so proud of my state for being in the lead. Now they're trying to go the other way."

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