WILLISTON, N.D. — How can you be in a relationship with someone who doesn't want to be in a relationship with you? That's the challenge facing Interior Secretary Sally Jewell when she recently visited with oil executives here and sought to explain why the federal government thinks it's necessary to regulate drilling operations.
"I appreciate what's happening in the Bakken," Jewell told reporters after touring a Continental Resources drilling rig on the Bakken rock-shale formation deep below Williston earlier this month. "I also know my job is overseeing the resources owned by the federal government. I have to develop these resources safely and responsibly in a way that also supports domestic energy production. It's a tricky balance."
Call it polite friction. Jewell said the regulations are necessary. The oil executives present said that the regulations are wholly unnecessary. The relationship among the federal government, energy companies, and state regulators is getting more tense as the combination of hydraulic fracturing and horizontal drilling unleashes one of the world's biggest oil and natural gas booms — and all of the environmental questions that come with it.
Indeed, the federal government is writing regulations controlling oil and gas drilling throughout the country even though many states — including North Dakota — already have rules on the books. It's a position that draws criticism from industry officials, and some in the states, who complain that too much red tape will constrain economic benefits.
"State regulators have done an awfully good job," said Harold Hamm, the billionaire founder and CEO of Continental. "It needs to be left to the states."
How the regulations play out could have a massive impact in places like North Dakota, which produced more than 800,000 barrels of oil a day in June, roughly 10 percent of the country's overall daily oil production and an all-time state record. North Dakota has now surpassed both California and Alaska to become the second-highest oil-producing state in the country behind Texas.
But the boom on the Bakken and Three Forks formations has also raised environmental questions about the integrity of the wells and the fracking process, which injects large amounts of water, sand, and chemicals into shale rock to allow oil and natural gas to escape.
The public-comment period for the regulations closed last week, and the Interior Department now must cull through hundreds of thousands of comments before finalizing the rule, which will likely take place in 2014. The regulation is made up of three primary elements: disclosing the chemicals used in fracking; ensuring wells are constructed soundly; and making sure that wastewater is managed safely after the fracking process.
While Hamm and Jewell were quick to praise how the boom is helping wean the country off foreign oil — the U.S. is importing the lowest amount of oil since the mid-1990's — the two do not see eye-to-eye on Interior's regulations. The Bureau of Land Management, which is the Interior agency writing the rule, is not likely to withdraw it, despite opposition from executives like Hamm and many state regulators.
Nevertheless, the bureau is trying to find a better balance for states that do have strong regulations in place, and North Dakota is likely to be in that category, said Lynn Helms, director of the North Dakota Department of Mineral Resources, who expressed cautious optimism after a recent meeting with Interior officials in Colorado. He said that of the 30 states that are producing oil and gas, 13 have not promulgated any regulations controlling hydraulic fracturing (although that number can change depending on how "regulation" and "hydraulic fracturing" are defined).
"From that standpoint, BLM seems very committed, because of the 13 states, to adopting a base rule," Helms said. "But they also indicated a real commitment to setting up a process for operators and states to seek and get approval for a variance from parts of the rules that they have covered in the state rules. And I think I can make that work."
At first glance, North Dakota may not appear to have reason to be too concerned about Interior's rules, because they only apply to federal lands. The productive land in North Dakota is 90 percent private, 2 percent state, and 8 percent federal. But the actual production data indicates otherwise. Twenty-two out of 185 drilling rigs are on federal lands, and of the state's 820,000 barrel-per-day of oil production, 257,000 barrels are on public lands, Helms said.
"The drilling and production is three times percentage-wise what the land holdings are," Helms said. "So it is a very significant part of oil and gas in North Dakota, much larger than ownership would indicate."
Critics of the federal government complain that it takes much longer to get a permit approved for drilling on federal lands than it does for state lands. In North Dakota, it takes about 270 days to get a federal permit approved, compared to 30 days for a state permit, Hamm said.
Very little oil and gas comes from public lands — just 5 percent of the oil and 13 percent of the gas used in the U.S., according to data provided by the Interior Department. This is in part because a lot of the shale natural-gas resources in the East happen to be on private lands, but critics say it's also due to the federal government's slow permitting process. Much of the shale oil and natural gas in the West is on public lands, where state regulators are historically weary of the federal government.
The Bureau of Land Management is expected to increase the amount of permits it approves soon, said Jamie Connell, state BLM director for Montana and the Dakotas. She said BLM is projecting to process roughly 900 drilling applications this year, up from 649 last year.
BLM has about 500 employees working on oil and gas permitting throughout the country, according to the Interior Department. By contrast, North Dakota's Department of Mineral Resources has 79 people working on oil and natural-gas issues, a number that has doubled since 2006.
One big challenge facing Connell and the rest of the Interior Department is short staffing — and for this, the feds blame the oil companies."I don't think there isn't one BLM employee you didn't steal from us," Connell told the oil executives before the Continental Resources tour. "We struggle with recruitment."