Government Regulations: A Balancing Act

With a production of more than one-half million barrels of oil everyday, North Dakota’s robust oil and gas industry remains a prime target of interest for environmentalists as well as regulators at all levels. “The regulations just continue to pile up,” explains Ron Ness, president of the North Dakota Petroleum Council. “They have people whose job is to write new rules and regulations. The ones from the federal government are so onerous you lose track.”

As the oil industry began to develop decades ago in states such as West Virginia, Pennsylvania, New York, Texas, Colorado, Oklahoma and California, however, over-regulation was hardly an issue. In the absence of a heavy federal hand, state regulatory systems assumed some responsibility, designing rules specific to their own unique regional situations. As time went on, states, and eventually the federal government, worked to engineer conservation by encouraging producers to deplete a well of the hard-to-reach along with the easier flowing oil. In the early days, state officials worried that the ground water might pollute the oil rather than the other way around. However, since the creation of the Environmental Protection Agency (EPA), which was spurred by the increasing awareness of the fragile nature of the environment in the 1970s, the oil and gas industry (as well as many other industries) has come under increasing scrutiny about almost every aspect of its business.

State Involvement

North Dakota has been proactive in regulating its oil and gas industry at the state level since its very infancy. “The state of North Dakota does a great job. They work well with consultants and oil companies,” says Bill Suess, environmental project manager for InterTech E&E Services in Bismarck. “I don’t have any complaints about what the state does.” As long ago as 1911, the state legislature passed a law prohibiting the production of gas unless it was tied to a distribution system. In 1941 the state enacted its first oil conservation law and some years later joined the Interstate Oil and Gas Compact Commission (IOGCC) which aids member states in regulating their industries. The two-fold mission of the commission is to conserve the nation’s oil and gas resources and to protect human health and environment.

The North Dakota State Legislature granted jurisdiction and authority to enforce legislation related to the oil and gas industry to the North Dakota Industrial Commission (NDIC) who then delegated the regulation of drilling and production to the Oil and Gas Division of the Department of Resources (NDO&GD). Acting as the administrative agency for the state, the NDO&GD administers regulations for processes that include the drilling, plugging and spacing of wells, the restoration of sites, the disposal of field wastes and the filing of required reports.

Developed over years as the industry has grown in North Dakota, the specific state regulations are comprehensive and, in most cases, meet or exceed whatever federal rules might also come into play. The requisite permit to drill is far-reaching, for example, and must include such factors as target depth, estimated depth to the top of biostratigraphic markers and objective horizons, proposed amount of cement needed and the depth at which each casing string will be set, just to name a few. Also the NDO&GD might require specific modifications to the drill site such as sloping and dikes to divert surface drainage along with the requisite container or reserve pit to contain solids and fluids. Other regulations specifically address casting, tubing and cementing requirements as well as injection control.

In addition, the state has acted to further protect the environment through legislation preventing the pollution of its waters. The state water pollution control board and the state department of health have powers to develop programs that address this issue. This expansive regulatory system in North Dakota has grown (and continues to evolve) with the expressed priority to protect the state’s environment, and most especially, its water and air. “Most producers are pretty happy with how North Dakota handles regulations,” Suess says.

Federal Involvement

Although many people give kudos to the State of North Dakota for its regulatory performance, they are not so happy with the role the federal government is exerting on the oil and gas industry. “The greatest concern is always duplicative and unnecessary regulation,” explains Howard Feldman, director of regulatory and scientific affairs for the American Petroleum Institute (API). “The federal government is discussing more rules and the states are doing a good job. The states best know what to do.” A number of federal agencies would not agree with API, however, as a host of them are dipping their toes into the oil and gas regulatory pond. Those who are currently involved in developing regulations pertaining to hydraulic fracturing, for example, include the EPA, the Department of Energy, the Department of the Interior, Department of Agriculture, the Department of Defense, the Department of Transportation, the Securities and Exchange Commission, the Department of Health and Human Services, the Department of Commerce and the Department of State. “There’s not a need for additional regulations,” Feldman emphasizes. “We need to help people meet current regulations. We support that.”

The repetitive nature of federal regulation is not its only negative characteristic, however. With little or no consideration given for regional differences across the nation, federal agencies are prone to developing sweeping regulations that apply in the same manner everywhere, according to oil and gas industry spokespersons. “There’s a one-size-fits-all rule in different parts of the country,” Ness says. On the other hand, state regulations take individual differences into consideration. “The state (ND) operates using science. The state has experts that understand the geology,” he says.

Of major concern is the great amount of proposed and potential legislation at the federal level regarding hydraulic fracturing, which is widely used in North Dakota as well as a number of other states. Although the extraction processes enjoy some similarities, the geologies of the various formations around the country are incredibly unique. “One of the greatest concerns is the difference between the geology and the rules,” Ness says. For example, fracturing in the Bakken Formation takes place two miles below the surface, but in the Marcellus Shale Gas Formation around Buffalo, New York it may occur at 900 feet. “The feds tend to look at the nation as a whole,” Suess says. “Oil is much shallower out in Pennsylvania. The oil levels here are two miles deep. They try to put a blanket set of rules on everybody.” Because of the depth of the Bakken and the exacting procedures used throughout the process, oil and gas industry persons firmly believe that the ground water in North Dakota is protected. “There’s no possible way for that to reach the water table,” Ness says.

Economic Impact

Other concerns regarding increased federal regulation involve the potential economic impact on an industry that now accounts for around one-fourth of North Dakota’s economy. The oil industry has generated more than 65,000 jobs, $12 billion in economic activity and more than $1 billion in state taxes, according to North Dakota Oil Can. Those in the industry fear that duplicative and inappropriate rules could create a business unfriendly environment by causing delays in permitting and increases in costs along the way. On a local level, however, the industry in North Dakota recently approved a number of new rules that will reduce the number of oil waste disposal pits and require disclosure of the chemical makeup of fluids used in fracturing. When fully enacted, the regulations will add thousands of dollars to production costs.

As state, federal and industry leaders search for common ground and areas of agreement, the issue of regulation is further clouded by misunderstandings that often grab headlines in the media. “There are so many misconceptions out there. Fracking sounds bad and that’s the spin on it. There are thousands of wells out there that have been fractured safely,” Feldman says. “There is an organized opposition to our producing US resources.” Some of the opposition and demand for increased regulation has been voiced against other industries as well, such as coal. “It’s about people that don’t like fossil fuels. They’ve created a fear that we need more regulation,” Ness says.

To help clear up misconceptions, the industry has embraced a variety of outreach programs that take place through associations, agencies and producers. “Education is critical. We’ve had hundreds of presentations every year. People want to understand,” Ness says. Outreach also provides the opportunity to listen to concerns people might have about how the oil boom is affecting the quality of life now and into the future.

Although it might seem that the industry is largely reactive to the call for regulation, some industry spokespersons cite the need for further clarification on the part of the state in certain instances. When dealing with naturally occurring radioactive materials (NORM), for example, Suess says it would be useful if the state would open discussion on whether the level of radioactivity could be raised safely to help avoid expensive waste disposal in Utah. He would also like to see the state give more direction and uniformity in cleaning up hydrocarbons. “The state is vague on the regulations for cleanup for total petroleum hydrocarbons (TPH),” he says.

As North Dakotans continue to face the challenge of managing their lucrative oil and gas industry, they acknowledge the value of keeping an open dialogue regarding regulations and other critical issues. Many industry movers and shakers advocate regular meetings with regulatory officials on all levels to facilitate keeping pace with the rapid changes that occur in the industry. Others say they can support federal regulatory involvement through programs that are delegated to state regulatory agencies and funded through primacy programs. With the state getting high marks from some quarters for now, it’s hoped that their positive involvement and direction will continue as growth and quality of life issues are dealt with. “It’s a great opportunity, but it’s a continual challenge,” Ness explains. “North Dakotans need to grab the advantage.”


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