Report warns of illegal drilling on federal land

Outdated rules and budget shortfalls make it hard to catch.

 

Across the oil and gas rich plains of North Dakota and Oklahoma, more and more wells are popping up. And more and more of them use a technology called “horizontal drilling,” which allows drillers to bore sideways as well as vertically – multiplying the amount of oil or gas extracted many times over. By marrying this technique with hydraulic fracturing (shooting water, sand and chemicals into underground rock to release their energy stores), U.S. production has soared to unprecedented levels. But while that’s good news for the economy, it’s leaving regulators several steps behind.

A recent report from the Interior Department’s inspector general highlighted the problem of illegal drilling on federal lands. Sometimes oil companies, whose wells extend thousands of feet horizontally, are unaware they are penetrating federal land. Photo by Flickr user Tim Whitlow

At least that’s the conclusion outlined in a report by the Office of the Inspector General, released late last month, which found that the increase in horizontal drilling means it’s easier than ever for oil and gas companies to operate – inadvertently or not - in areas for which they don’t have permission to drill. The unauthorized drilling means the government is losing out on royalty payments, and poses environmental risks.

According to the findings, the Bureau of Land Management, which manages oil and gas reserves on 700 million acres of land, both public and private, has a "weak" policy for deterring lawbreakers and no reliable way of catching operators who drill illegally.

The trespassing problem has been on the BLM’s radar since the Bakken boom began, says Rick Rymerson, BLM’s Dickinson field manager. But the real problem, he argued, is the fragmented arrangement of land and mineral ownership in North Dakota and other Western states, where lands with private, state and federal ownership are laid out like a checkerboard.

Companies, he said, often trespass on federal land without realizing it. “Sometimes we’re just a narrow strip so the well operators are saying ‘what the heck, we didn’t even know.”

For example, picture a parcel of land that’s six miles wide and six miles long divided into 36 sections, each a mile square. A well pad might operate from a section of private land, but since the horizontal portion of the rig can extend up to three miles in any direction below the surface of the earth, the rig could end up penetrating another parcel of land where the operator doesn’t have drilling rights.

Violations can happen two ways: if an operator drills into oil and gas on federal land without a mineral lease or without permission from another entity that does have a lease, they are “in trespass.” The second form of lawbreaking, called “drilling without approval”, occurs when a company drills into land it leases from the BLM, but lacks a proper permit.

In the past several years, the report found, the BLM’s North Dakota field office found about 10 cases of potential trespass and 70 cases of drilling without approval, resulting in $530,000 in lost royalties. The illegal activity also risks harming wildlife habitat and polluting underground water sources, since it means operators are skirting environmental reviews. The report pointed to an unpermitted well discovered in Wyoming that did not comply with the BLM’s standards for casing the well, designed to protect aquifers.

But some in the industry question the significance of those findings. Considering the thousands of wells that were drilled in North Dakota and well over $500 million collected in royalty payments over the past several years, the impact of unauthorized drilling is “very small,” said Kathleen Sgamma, the vice president of Government and Public Affairs for the Western Energy Alliance, a group that lobbies on behalf of the oil and gas industry.

Although the number of cases may not be large, that doesn’t mean the issue isn’t relevant, says Amy Mall, an expert on oil and gas development with the Natural Resources Defense Council. “We’re seeing these problems on many fronts,” she says, adding that the weak penalties for rule-breaking and insufficient enforcement are indicative of larger issues associated with regulating the booming oil and gas industry.  

The report found that the two BLM regulations addressing unauthorized drilling are "ineffective deterrents.” One was written in the 1980s – before the energy boom got underway – and imposes a $5,000 fee for unpermitted drilling, which Rymerson acknowledged no longer suffices given that the estimated cost of completing a well in North Dakota today is $8 million to $12 million.

Also, earlier this year the Government Accountability Office released the results of an investigation that revealed that the BLM failed to inspect more than 40 percent of the 3,700 wells nationally it considers at high risk of contaminating groundwater or causing other environmental damage . What’s more, the auditors cited numerous earlier reports that reached similar conclusions about the Bureau’s lack of adequate oversight over drilling operations and their outdated rulebook governing the oil and gas industry.

The BLM, like other federal land management agencies, is suffering from staffing shortfalls and budget cutbacks, hindering its ability to properly regulate oil and gas activity. Rymerson says his office needs more assistance in processing the paperwork for things like permitting and inspection, but struggles to keep the positions filled – ironically, a problem he sees as a symptom of the oil boom itself: “We have such high turnover, partly because the cost of living is so high here.”

For Mall, whether or not companies are willfully breaking the law misses the point.

The BLM manages land for multiple uses and approves development based on risk to things like wildlife habitat and water supply -- and an unauthorized well bypasses the rules designed to protect those other uses.

“It may not be willful negligence, but companies need to do their due diligence,” says Mall. “If you don’t know where your lease or permit ends, maybe you should have spent more time studying it first.” 

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