North Dakota Regulators Use Cooperative Approach To Oil Patch Spills

The New York Times investigates how North Dakota regulates the Bakken oil field, and how that impacts company actions:

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.

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.

The article notes that business culture in the United States may also be at fault:

Statoil, a multinational company whose largest shareholder is the Norwegian government, now ranks as the state’s fifth-biggest producer. With a professed goal of “zero incidents, zero releases,” according to Russell Rankin, its regional manager, it has reported no blowouts and has the best record in the state among the major producers in terms of how many gallons of oil it produces for each incident.

Based on volume, Statoil has produced 9,000 gallons of oil for every gallon of spillage; Continental has produced 3,500. Statoil contained some 70 percent of its spill volume to production sites. Continental contained less than half, The Times found.

In its written response, Continental disputed The Times’s “math,” but did not respond further after it was sent a spreadsheet of reported incidents that formed the basis for the findings.

I read the state Industrial Commission's monthly production data release, and have been amazed to see the report thanking folks for commenting on federal regulatory rule proposals encouraging a "states first" policy.  The state's hands-off regulatory approach will greatly benefit oil producers and saddle farmers, landowners and permanent residents with long-term pollution problems when the boom is over and done.  All I can say is that I'm glad the boom is there and not here.