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

Deborah Sontag and Robert Gebeloff, The Downside of the Boom. The New York Times, Part 1 of a 3-Part Series, 22 November 2014. “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.” Part 2, Deborah Sontag, Where Oil and Politics Mix. 23 November 2014. Part 3, Deborah Sontag and Brent McDonald, In North Dakota, a Tale of Oil, Corruption and Death. 28 December 2014.

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….

North Dakota’s oil and gas regulatory setup is highly unusual in that it puts three top elected officials [the governor, the attorney general, and the agriculture commissioner] directly in charge of an industry that, through its executives and political action committees, can and does contribute to the officials’ campaigns….

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….

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….

Given the state’s history of population loss and economic decline, state officials delighted in the arrival of oil companies eager to exploit the tremendous untapped potential of the primeval Bakken formation deep beneath the sweeping prairies and rugged badlands of western North Dakota.

Especially during the first years, officials were anxious that this oil boom, like previous ones, could be fleeting, that oil companies, if not embraced, could shift their rigs and capital investment to fields with less severe winters and better access to markets….

To his critics, Mr. [Lynn] Helms [director of the North Dakota Department of Mineral Resources] personifies a cozy relationship between the commission and oil companies. His dual mission heightens this, they say, as he is compelled by statute both to promote “the greatest possible economic recovery of oil and gas” and to enforce regulations….

What happened to [Patricia and Steven Jensen] last fall [September 2013]— considered the largest on-land oil spill in recent American history — confronted North Dakota with the potential costs of the boom.

It shined a light on the state government’s lack of transparency when it went unreported to the public for 11 days. It raised awareness that spills of all magnitudes were daily and routine. It highlighted the inadequacy of pipeline monitoring.

And it made clear that even in the worst cases the authorities are hesitant to use punitive sanctions. More than a year after the spill, neither the federal nor the state government has penalized the company responsible, Tesoro Logistics of San Antonio….

Pipeline leaks are not the most common cause of spills; valve or piping connection problems are, The Times found. But they spew the greatest volume of oil and wastewater and are the most likely to cause pollution….

North Dakota has shed its identity as an agricultural state in decline to become an oil powerhouse second only to Texas….

Underlying the state’s regulatory posture is the premise that spills are all but inevitable and will increase alongside increases in drilling. But that is not a universally shared perspective.

“There’s this idea that spills are just the cost of doing business,” said Amy Mall, a senior policy analyst with the Natural Resources Defense Council. “But there’s no technical justification for all these spills. And it’s not acceptable. It’s just not. It just shows how poorly the oil and gas industry is doing its job, and that nobody is making them do it right.”…

After an unusual land deal, a giant spill and a tanker-train explosion, anxiety began to ripple across the North Dakota prairie….

North Dakotans do not like to make a fuss. Until recently, those few who dared to challenge the brisk pace of oil development, the perceived laxity of government oversight or the despoliation of farmland were treated as killjoys. They were ignored, ridiculed, threatened, and paid settlements in exchange for silence….

Then, this year [2014], North Dakotans learned of discovery after discovery of illegally dumped oil filter socks, the “used condoms” of the oil industry, which contain radiation dislodged from deep underground….

In 2011, Mr. [Timothy] Purdon [the United States attorney] decided firmer action was needed. In one sweep through the Bakken, Richard Grosz, a special agent for the United States Fish and Wildlife Service, collected 28 dead birds from drilling sites. One, found submerged, had a rock tied to its neck: “They had tried to deep-six the evidence,” Mr. Grosz said.

Six oil companies were charged with misdemeanor violations of the Migratory Bird Treaty Act. Mr. Purdon said that within hours of the complaints being filed, he received a call from a friend with a message from top-ranking state officials: “If Tim thought he would be a federal judge someday, that’s done.”

Three companies signed plea agreements. The others fought the charges, and not just in court. During a presidential campaign debate, Mitt Romney, whose energy adviser was chief executive of one of those companies, Continental Resources, mocked the prosecution; The Wall Street Journal called Mr. Purdon “dodo prosecutor of the year.”

A federal judge dismissed the cases, saying the bird act was meant to address deliberate killing by hunters and poachers.

Since then, Mr. Grosz said, “we have not gone back out in the oil patch to look for these things. Birds are still being killed. But we’ve quit.”…

Over the campaign [for Governor of North Dakota in 2012], Mr. Dalrymple would collect over $93,000 from those with a direct interest in the mega-unit and a total of about $550,000 from oil-related executives, lawyers and political action committees. That represented a quarter of the $2.16 million in contributions over $200 (the bar for disclosure) to Mr. Dalrymple.

Governors in top oil-producing states typically get industry contributions. In North Dakota, though, the governor’s relationship to those contributors’ interests is uniquely direct because he is chairman of the Industrial Commission [which regulates the oil and gas industry].

“North Dakota’s is a hugely defective setup,” said David C. Thompson, a lawyer in Grand Forks. “Our elected officials regulate companies they get contributions from and companies they own stock in. Nobody ever recuses himself; they just vote.”…

Early this year [2014], an irritated crowd at a Mountrail County Commission meeting confronted Mr. Helms, the director of mineral resources, asking why state officials had approved an oil waste pit in the wellhead protection area for a municipal water supply.

Mr. Helms explained that his inspectors had had the wrong maps, adding, “We strive for perfection, but since we’re human, we have to settle for excellence.”…

In 2012,…Robert [Kleemann], a Dunn County commissioner, complained to the state that the unit development plan was being modified, putting 11 wells within a half-mile of six homes.

When an official responded that the changes appeared necessary for topographical reasons, Mr. Kleemann wrote back, “I do not think you could understand our concerns unless we could put a drilling rig on each side of your house so you could listen to the clang of pipes, the roar of motors, the constant beep of the horn and be awakened in the morning to the driller giving orders over the bullhorn and you could try to sleep with the constant noise of Jake Brakes.”

State officials were more concerned that ConocoPhillips was not developing the unit as aggressively as promised. Now the pace has picked up, with several dozen wells drilled in 2013 and several dozen more this year.