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paula.carrell@sierraclub.org 12/14/2011 1:35 PM >>>

E-mail this story, sponsored by American Energy Innovation Council

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OIL AND GAS: Protecting oil from water -- the history of state regulation (Wednesday, December 14, 2011)

TOWANDA, Pa. -- A thin smile crept across Tony Tripp's face when reporters started asking him about the rules for gas drilling in Pennsylvania and West Virginia.

"A lot of things aren't required in West Virginia," Tripp, foreman of the 92-foot drill rig rumbling a few feet away, told journalists on an industry-sponsored tour of drill sites here. "I kinda like working there."

Randy Huffman, no doubt, would like to disagree. As secretary of the West Virginia Department of Environmental Protection, he is the top environmental official in the state and an ardent defender of states' ability to regulate drilling. But even he has to admit West Virginia's laws are hopelessly out of date.

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Standing in his shirt-sleeves in an elementary school cafeteria last June before a crowd of drilling opponents in Morgantown, W.Va., Huffman explained that the state's regulatory structure is 80 years old. It was designed with small, shallow gas wells in mind, not 5-acre industrial sites with hundreds of trucks hauling millions of gallons of water for hydraulic fracturing.

"Quite frankly, our regulatory structure is not prepared to deal with it," Huffman said as the sun set on a pleasant mountain evening. "All of a sudden we have, basically, a brand new industry that shows up on the scene. We see a lot of things, that quite frankly, the state was not prepared for."

It's not prepared, even though companies have been drilling the state's Marcellus Shale for six years now. Lawmakers failed to reach agreement on an update last spring. This week, they will try again in a special session.

West Virginia is one of the starker examples of a state regulatory system developed before World War II trying to keep up, or catch up, with the drilling boom taking place across the United States.

Eighty years ago, state officials were worried that water would pollute oil, not the other way around. Today, they are under increasing pressure to keep drinking water clean even as they promote the oil and gas production that delivers jobs and tax revenues amid a steady flow of economic woes.

Today's drilling revival stretches from upstate New York to Southern California, bringing oil and gas production to new areas and more intense drilling to areas where it had been on the decline.

The revival is being propelled by advances in the technology of hydraulic fracturing that enables operators to squeeze gas and oil from solid rock. Drill bits can burrow a mile below ground, then turn and tunnel sideways for another mile or more. Crews blast millions of gallons of chemical-laced water through the pipes to "fracture" the rock and release gas from the pores of the shale formation.

In the last decade, there has been a twelvefold increase in shale gas production, according to the U.S. Energy Information Administration. Still, plays like the Marcellus Shale in Pennsylvania and West Virginia are in their infancy.

Regulatory roots in 1930s oil boom

Attempts by state oil and gas agencies to deal with the pace of this production have varied dramatically.

Pennsylvania has repeatedly added new rules, often to address new problems that caused an uproar. New York, where opposition is the strongest, sought to avoid playing catch-up by putting a hold on development while it prepared for the industry.

West Virginia headed off some of the problems that Pennsylvania had with disposal of the salty, sometimes toxic, wastewater created by the fracturing process. But it still lacks basic protections, such as requirements to line wastewater pits at well sites.

In Texas, where drilling is marching toward suburbs and cities, a state legislative panel recommended a "fundamental restructuring" of the oil and gas agency. But the Legislature declined to act.

In Colorado, a wave of drilling early in the last decade led to an overhaul of the state's oil and gas agency that reduced industry influence and spawned new rules.

To understand the current state of oil and gas regulation, it is helpful to look back to the 1930s, when state and federal governments and some oil companies had a now-forgotten worry -- too much domestic production of oil.

Drillers would often mob new oil finds. They would sink wells as fast as they could to prevent rivals from siphoning off the oil from a lease next door. When the oil stopped flowing fast, they would abandon the wells and leave the harder-to-get oil in the ground. That caused tremendous peaks and valleys in prices as new fields were discovered and depleted.

After years of wrangling, state and federal government imposed a system of "conservation." At the time, that word wasn't the synonym for "environmentalism" it has become. Instead, it meant preventing "waste" of petroleum by getting it all out of the ground.

States created "oil conservation commissions" to regulate production and prop up prices. Texas' panel, oddly enough named the Railroad Commission, would later become the model for the Organization of Petroleum Exporting Countries.

Regulators didn't worry about oil polluting the groundwater.

"The focus was on protection of the petroleum resource from the effects of water incursion, and not on protection of water resources themselves," according to a history of oil and gas rules by the Ground Water Protection Council (GWPC), an organization of state regulators that works closely with industry. "The protection of groundwater from pollution was carried as a secondary consideration in most regulations."

The regulators didn't worry much about the people who owned the land over the oil, either.

"Most oil producers of the early period [before 1935] believed that royalty payments to the landowner for the privilege of extracting oil or gas from beneath their land adequately compensated the landowner for any surface and water resource damages caused to the property," the GWPC report says. "Pollution of ground water ... was not a concept widely understood by the oil industry, landowners or state regulatory agencies."

'They are not environmental agencies'

After World War II and through the 1960s, the report says, environmental protection efforts developed "sporadically."

As the 1970s began, the environmental movement spurred state and federal governments to take a second look at the harm inflicted by industries, including oil and gas. That is when U.S. EPA was created, major federal environmental laws were passed and many states created their own "environmental protection" or "environmental quality" departments.

But the '70s also marked the decline in domestic oil production, as oil majors headed offshore and overseas to find new supplies.

In the years since, the oil and gas industry won exemptions from portions of several landmark federal environmental laws, arguing that states had the expertise to adjust for local conditions. At the state level, oil and gas agencies took responsibility for enforcing many of the environmental and health laws, both federal and state, as they applied to petroleum production.

"The industry argued, 'We already have an agency that understands well spacing, and other technical aspects,' so they ought to take care of this as well," said Jacqueline Lang Weaver, a law professor at the University of Houston and co-author of a treatise on Texas oil and gas law. "They are not environmental agencies. That's not what they're set up for."

Today, many of those agencies that were in charge of controlling production are now responsible for protecting people and the environment from the industrial hazards of the industry. In the 1990s, some updated their rules on waste pits and well construction. Oklahoma and others formalized their penalty systems to address repeat offenders. And many states set up programs to cap abandoned wells.

The GWPC report, released in 2009, asserts that state regulators had environmental oversight of oil and gas in hand.

"Although current state oil and gas regulatory programs for water and environmental resource protection vary in scope and specificity," the report says, "they invariably have the common elements necessary to ensure the development of oil and natural gas resources is accomplished in a manner designed to protect water resources."

But two years later, states such as West Virginia have not developed ways to protect their roads or their air or to assess the full range of effects that come with large-scale drilling.

"Our program has not really evolved, not many in the country have evolved to a point of considering the total impact of all the activity that's going on in a given area," West Virginia environment chief Huffman told the crowd in Morgantown. "That would be a pretty significant shift in our way of thinking, but I think it's the place that we're headed."

In Texas, a review by a state legislative panel found the Railroad Commission took enforcement action on less than 1 percent of water-protection violations and said the agency had a history of lax enforcement against drillers.

In Pennsylvania, the heart of the boom, state officials raised fees, more than doubled the number of well inspectors and created new rules to control where drillers got water for fracturing and how they disposed of it.

But state geologists have testified they spend as little as 35 minutes on each well permit and are not familiar with requirements to look at how the operation might affect nearby streams.

And Pennsylvania moved to prevent radiation-laced wastewater from getting into streams only after a New York Times story prompted EPA to start asking questions (Greenwire, March 8).

Review program languishes

Despite the boom in drilling, one of the most widely touted methods for states to improve their regulatory program is suffering from disuse.

A program called STRONGER, for "State Review of Oil and Natural Gas Environmental Regulations," is designed to serve as a sort of peer-review process for state regulators. It also includes representatives of industry and environmental groups.

But STRONGER hasn't conducted a full review of a state regulatory program since 2007. Reviews are voluntary, and the organization's leaders say states have been unwilling to put themselves under the microscope. Instead, it has concentrated on narrower reviews of a few states' rules on the hydraulic fracturing process.

West Virginia has not been reviewed since 2003. Pennsylvania had its fracturing rules evaluated in 2010. But its full oil and gas program hasn't been looked at since 2004, before the first Marcellus well was drilled.

"There's been a real reluctance to be reviewed," said Wilma Subra, an environmental scientist from Louisiana who sits on the STRONGER board.

Industry itself is reducing its use of controversial "wastewater pits." Landowners don't like them, and in the less-than-arid climate of the Northeast, they tend to fill up with rainwater. And at some sites, with wellbores extending for miles, there is just too much stuff to bury it all.

It is not states requiring well operators to use such methods as the "closed-loop" system on Tripp's rig, which stores drilling fluids in steel tanks instead of open pits.

"They figure it's coming," explained Tripp, who has been drilling oil and gas wells for decades.

In West Virginia, Gov. Earl Ray Tomblin (D) imposed new "emergency" rules on drilling a few weeks after Huffman spoke in Morgantown. The rules required public disclosure of fracturing chemicals and ordered public notice to be given when companies propose wells in incorporated cities and towns.

That responded to some of the complaints Huffman was confronted with in June. The school was just uphill from a new Marcellus Shale well that was going up within the city limits of Morgantown, surprising many city leaders concerned about the purity of their water supply.

But the emergency rules did not offer public notice for wells in unincorporated areas. And they did not address what happens when property owners have conflicts with drilling companies.

This week, they will try to move from emergency rules to permanent laws. Tomblin called a special session of the Legislature to pass a bill initiated by a special subcommittee. The governor's bill would increase permit fees and require wells (but not well pads) to be 650 feet from homes, instead of 200 feet.

If it gets through, the measure will be the first major revision in the state's oil and gas law since the Marcellus boom began. In an interview, Huffman said that when the process is viewed in a historical context, the state is moving relatively rapidly to deal with its new industry.

"This is as responsive as you've ever seen to a new technology," Huffman said. "We mined coal for 70 years before we regulated it. We're ahead of the game."