Inside the Oil Boom

On Fracking Rules, It’s States vs. Feds

North Dakota seeks balance with Washington over fracking regulations.

Interior Secretary Sally Jewell, right, and Sen. John Hoeven, R-N.D., tour a drilling rig in North Dakota operated by Norwegian company Statoil.
National Journal
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Amy Harder
Aug. 27, 2013, 3:30 p.m.

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.”

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