The Downside of the Boom

THE DOWNSIDE OF THE BOOM

North Dakota took on the oversight of a multibillion-dollar oil industry with a regulatory system built on trust, warnings and second chances

WILLISTON, N.D. — In early August 2013, Arlene Skurupey of Blacksburg, Va., got an animated call from the normally taciturn farmer who rents her family land in Billings County, N.D. There had been an accident at the Skurupey 1-9H oil well. “Oh, my gosh, the gold is blowing,” she said he told her. “Bakken gold.”

It was the 11th blowout since 2006 at a North Dakota well operated by Continental Resources, the most prolific producer in the booming Bakken oil patch. Spewing some 173,250 gallons of potential pollutants, the eruption, undisclosed at the time, was serious enough to bring the Oklahoma-based company’s chairman and chief executive, Harold G. Hamm, to the remote scene.

It was not the first or most catastrophic blowout visited by Mr. Hamm, a sharecropper’s son who became the wealthiest oilman in America and energy adviser to Mitt Romney during the 2012 presidential campaign. Two years earlier, a towering derrick in Golden Valley County had erupted into flames and toppled, leaving three workers badly burned. “I was a human torch,” said the driller, Andrew J. Rohr.

Blowouts represent the riskiest failure in the oil business. Yet, despite these serious injuries and some 115,000 gallons spilled in those first 10 blowouts, the North Dakota Industrial Commission, which regulates the drilling and production of oil and gas, did not penalize Continental until the 11th.

The commission — the governor, attorney general and agriculture commissioner — imposed a $75,000 penalty. Earlier this year, though, the commission, as it often does, suspended 90 percent of the fine, settling for $7,500 after Continental blamed “an irresponsible supervisor” — just as it had blamed Mr. Rohr and his crew, contract workers, for the blowout that left them traumatized.

Since 2006, when advances in hydraulic fracturing — fracking — and horizontal drilling began unlocking a trove of sweet crude oil in the Bakken shale formation, North Dakota has shed its identity as an agricultural state in decline to become an oil powerhouse second only to Texas. A small state that believes in small government, it took on the oversight of a multibillion-dollar industry with a slender regulatory system built on neighborly trust, verbal warnings and second chances.

In recent years, as the boom really exploded, the number of reported spills, leaks, fires and blowouts has soared, with an increase in spillage that outpaces the increase in oil production, an investigation by The New York Times found. Yet, even as the state has hired more oil field inspectors and imposed new regulations, forgiveness remains embedded in the Industrial Commission’s approach to an industry that has given North Dakota the fastest-growing economy and lowest jobless rate in the country.

For those who champion fossil fuels as the key to America’s energy independence, North Dakota is an unrivaled success, a place where fracking has provoked little of the divisive environmental debate that takes place elsewhere. Its state leaders rarely mention the underside of the boom and do not release even summary statistics about environmental incidents and enforcement measures.

Over the past nine months, using previously undisclosed and unanalyzed records, bolstered by scores of interviews in North Dakota, The Times has pieced together a detailed accounting of the industry’s environmental record and the state’s approach to managing the “carbon rush.”

The Times found that the Industrial Commission wields its power to penalize the industry only as a last resort. It rarely pursues formal complaints and typically settles those for about 10 percent of the assessed penalties. Since 2006, the commission has collected an estimated $1.1 million in fines. This is a pittance compared with the $33 million (including some reimbursements for cleanups) collected by Texas’ equivalent authority over roughly the same period, when Texas produced four times the oil.

“We’re spoiling the child by sparing the rod,” said Daryl Peterson, a farmer who has filed a complaint seeking to compel the state to punish oil companies for spills that contaminated his land. “We should be using the sword, not the feather.”

North Dakota’s oil and gas regulatory setup is highly unusual in that it puts three top elected officials directly in charge of an industry that, through its executives and political action committees, can and does contribute to the officials’ campaigns. Mr. Hamm and other Continental officials, for instance, have contributed $39,900 to the commissioners since 2010. John B. Hess, chief executive of Hess Oil, the state’s second-biggest oil producer, contributed $25,000 to Gov. Jack Dalrymple in 2012.

Indeed, as the tangle of buried pipelines has grown, there have been no federal pipeline inspectors based in North Dakota. But there have been no state inspectors, either, to oversee the much larger network of gathering pipelines unregulated by the federal government — a fount of many spills.

Penalizing companies for every violation is imprudent and can be counterproductive, Mr. Helms said, potentially “leaving the citizens of North Dakota with enormous liabilities on their hands when bankrupt operators walk away.”

Continental Resources hardly seems likely to walk away from its 1.2 million leased acres in the Bakken. It has reaped substantial profit from the boom, with $2.8 billion in net income from 2006 through 2013.

But the company, which has a former North Dakota governor on its board, has been treated with leniency by the Industrial Commission.

From 2006 through August, it reported more spills and environmental incidents (937) and a greater volume of spillage (1.6 million gallons) than any other operator. It spilled more per barrel of oil produced than any of the state’s other major producers. Since 2006, however, the company has paid the Industrial Commission $20,000 out of $222,000 in assessed fines.

Continental said in a written response to questions that it was misleading to compare its spill record with that of other operators because “we are not aware other operators report spills as transparently and proactively as we do.” It said that it had recovered the majority of what it spilled, and that penalty reductions came from providing the Industrial Commission “with precisely the information it needs to enforce its regulations fairly.”

What Continental paid Mr. Rohr, the injured driller, is guarded by a confidentiality agreement negotiated after a jury was impaneled for a trial this September. His wife, Winnie, said she wished the trial had gone forward “so the truth could come out, but we just didn’t have enough power to fight them.”

Looking back now, one thing gnaws at her.

“You know what really bothered me ?” Mrs. Rohr said. “Harold Hamm flew up to see the damage to the rig but didn’t go see the guys who were burned.”

State regulators say they deliberately choose a collaborative rather than punitive approach because they view the large independent companies that dominate the Bakken as responsible and as their necessary allies in policing the oil fields. They prefer to work alongside industry to develop new guidelines or regulations when problems like overflowing waste, radioactive waste, leaking pipelines, and flaring gas become too glaring to ignore.

Mr. Dalrymple’s office said in a statement : “The North Dakota Industrial Commission has adopted some of the most stringent oil and gas production regulations in the country to enhance protections for our water, air and land. At the same time, the state has significantly increased staffing to enforce environmental protections. Our track record is one of increased regulation and oversight.”

Researchers who study government enforcement generally conclude that “the cooperative approach doesn’t seem to generate results” while “the evidence shows that increased monitoring and increased enforcement will reduce the incidence of oil spills,” said Mark A. Cohen, a Vanderbilt University professor who led a team advising the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling.

With spills steadily rising in North Dakota, evidence gathered by The Times suggests that the cooperative approach is not working that well for the state, where the Industrial Commission shares industry oversight with the state’s Health Department and federal agencies.

One environmental incident for every 11 wells in 2006, for instance, became one for every six last year, The Times found.

Through early October of this year, companies reported 3.8 million gallons spilled, nearly as much as in 2011 and 2012 combined.

Over all, more than 18.4 million gallons of oils and chemicals spilled, leaked or misted into the air, soil and waters of North Dakota from 2006 through early October 2014. (In addition, the oil industry reported spilling 5.2 million gallons of nontoxic substances, mostly fresh water, which can alter the environment and carry contaminants.)

The spill numbers derive from estimates, and sometimes serious underestimates, reported to the state by the industry. State officials, who rarely discuss them publicly, sometimes use them to present a rosier image. Over the summer, speaking to farmers in the town of Antler, Lynn D. Helms, the director of the Department of Mineral Resources, announced “a little bit of good news” : The spill rate per well was “steady or down.” In fact, the rate has risen sharply since the early days of the boom.

Presented with The Times’s data analysis, and asked if the state was doing an effective job at preventing spills, Mr. Helms struck a more sober note. “We’re doing O.K.,” he said. “We’re not doing great.”

He noted it is a federal agency, the Pipeline and Hazardous Materials Safety Administration, that regulates oil transmission pipelines. “You can’t use the spills P.H.M.S.A. was responsible for and conclude my approach to regulation is not working,” he said.

 Embracing the Oil Industry as Economic Salvation
 A Record Spill Puts the Focus on the Costs of a Boom
 From Wastewater Contamination, Sterilized Soil and Shriveled Crops
 The Golden Egg

Lire l’article de Deborah Sontag and Robert Gebeloff sur Le New-York Times