Senate kills bill to add scrutiny on oil and gas penalties

BISMARCK – A bill that would have required North Dakota Industrial Commission members to approve settlements of oil and gas penalties failed Monday in the Senate.

Senators voted 30-17 against Senate Bill 2342, that prime sponsor Sen. Tyler Axness said would have added transparency to the reductions of fines that are negotiated by the director of the Department of Mineral Resources.

“Who is in charge? Where does the buck stop with this current process? I believe the public has right to know what their publicly elected officials have to say in this matter,” said Axness, D-Fargo.

Sen. David Rust, R-Tioga, said the fine reduction for a company involved with filter socks abandoned in Noonan prompted him to co-sponsor the bill.

In that case, the Department of Mineral Resources originally proposed an $800,000 fine but collected about $20,000 from the company.

Rust said although he agrees there are instances when it’s appropriate to reduce fines, citizens in his area look at those dramatic fine reductions as “less than a slap on the wrist.”

“There are times that it appears as if the public safety of the people in that area is not as huge a concern as it should be,” Rust said.

Sen. Kelly Armstrong, R-Dickinson, urged senators to oppose the bill, which received a 4-2 do-not-pass recommendation from the Judiciary Committee.

Armstrong said the Industrial Commission members – the governor, attorney general and agriculture commissioner – have the authority to delegate duties to the Department of Mineral Resources.

“This bill is legislative micromanagement,” Armstrong said.

Armstrong also pointed out that the fine cited for the filter socks in Noonan was not for the company that illegally disposed of the waste. As part of the settlement, the company has to cooperate with the investigation into the responsible party.

The Department of Mineral Resources proposes penalties for oil and gas companies that commit violations and routinely suspend 75 percent to 90 percent of the fine in settlement agreements. Director Lynn Helms has defended the practice, saying that holding the fines over causes companies to change employee behavior long-term.

 

December oil production a ‘tug of war’ in N.D.

BISMARCK – North Dakota oil production was a “tug of war” in December as production hit a record 1.2 million barrels a day but drilling began to decline, the state’s top oil regulator said Friday.

Oil production increased 3.3 percent in December, according to preliminary numbers, even as declining oil prices prompted the number of drilling rigs operating in North Dakota to drop.

December saw a surge in well completions as operators had end-of-year budgets to spend and 2014 production targets to hit, Lynn Helms, director of the Department of Mineral Resources, said in his monthly update.

Helms said the December figures give him increased confidence that oil prices will not stay low enough to hit the so-called “large trigger,” which could cost the state significant oil and gas tax revenue if oil prices average less than $52.59 for five straight months.

The exemption that drops the oil extraction tax to 0 percent for all wells during their first two years of production could take effect as early as June, which would affect revenues in July. The budget forecast that legislators are working with calls for the state to hit the large trigger June through March of next year.

“It’s looking more and more likely that the large trigger will not hit,” Helms said.

The price of West Texas Intermediate oil was at $52.78 a barrel Friday.

The state had 137 drilling rigs operating Friday morning, the lowest since July 2010. Helms said he expects the rig count to fall to the low 120s.

Company executives are having a lot of “circular discussions” about when to complete oil and gas wells taking into consideration oil prices, the tax exemption triggers and what’s needed to hit gas capture goals set by the Industrial Commission, Helms said.

“With all of the forces at play here, a lot of companies aren’t exactly sure what to do,” Helms said.

Crews completed 173 oil and gas wells in December compared to 48 the month before. The number of wells waiting for fracking and completion crews was estimated to be 750 at the end of December, down 25 from November.

Helms said he heard from one operator that fracking crews are running at 100 percent despite the slowdown in drilling.

Natural gas flaring fell to 24 percent in December. Companies are on pace to exceed the goal set by the North Dakota Industrial Commission to capture 77 percent of natural gas in January, Helms said.

At least one company has restricted oil production by about 5,000 barrels per day in order to meet the goals, he said.

“There’s a fair amount of pressure to relax those goals on the part of the Industrial Commission, but there is no hard evidence or information that would lead me to make that recommendation to the commission,” Helms said.

Fifty-nine percent of oil was transported by rail in December and 35 percent by pipeline, the same breakdown as November, said Justin Kringstad, director of the North Dakota Pipeline Authority.

Helms said he projects that oil production will hold steady at a little more than 1.2 million barrels per day for 2014.

Senators reject bill to separate promotion, regulation of oil industry

BISMARCK – Senators voted 32-15 Friday against a bill that would have separated the North Dakota Industrial Commission’s duties to promote and regulate oil development.

The vote fell along party lines, with Republicans voting to reject the bill that would have shifted some duties of the Industrial Commission to the Department of Commerce.

Sen. Connie Triplett, D-Grand Forks, the prime sponsor of Senate Bill 2366, offered an amendment that would have simply removed the word “promotion” from the job description of the Department of Mineral Resources.

Triplett said the intent of the bill is to address the notion that it’s a conflict of interest for the director to be expected to both promote and regulate oil.

“I think it probably was a reasonable statement of intent in 1953 when North Dakota was newly in the business of competing for oil development resources,” Triplett said. “All these many years later, I think it’s time that we should change slightly the focus.”

Triplett’s amendment would have eliminated the portions of her bill that shifted duties of the Geological Survey and other entities to the Department of Commerce. The bill as introduced received a do-not-pass recommendation from the Senate Energy and Natural Resources Committee in a 5-2 vote, also along party lines.

Senators rejected the amendment in a voice vote before voting against the original bill.

Sen. Kelly Armstrong, R-Dickinson, a member of the Energy and Natural Resources Committee, urged lawmakers to oppose both the bill and the amendment.

Committee members considered all testimony and decided the bill is not in the best interest of North Dakota, Armstrong said.

“Our Department of Mineral Resources is a fine agency. They have a difficult job,” Armstrong said. “They wear many hats and they do these jobs with diligence and dignity.”

Triplett said her bill was not an indictment of Lynn Helms, the director of the Department of Mineral Resources, or any members of the Industrial Commission. But she said she lost faith in the regulatory process during recent discussions about the volatility of Bakken crude that followed fiery train derailments.

“In the end, it felt to me that there was a conflict of interest on this very, very important topic about promoting our oil versus regulating this industry,” Triplett said.

Armstrong said there’s a misconception about how the word promotion is used in the language. He said it refers to the promotion of responsible development and encouraging new technology.

“This bill is all about perception and not one bit about policy,” Armstrong said.

Mandatory audits of oil, health agencies defeated by N.D. House

BISMARCK – House lawmakers rejected a bill Wednesday that would have required a performance audit of state agencies that regulate oil and gas development, but a legislative committee will consider requesting those audits.

The House voted 67-22 against House Bill 1259 that proposed audits within the next two years for the Oil and Gas Division of the Department of Mineral Resources as well as the North Dakota Department of Health’s enforcement of oilfield waste rules.

House Minority Leader Kenton Onstad, D-Parshall, the lead sponsor of the bill, said concerns from landowners and news stories from the New York Times and other publications have raised questions about the state’s regulators.

“There’s a lot of skepticism out there in the public,” Onstad said.

Rep. Kylie Oversen, D-Grand Forks, also urged support for the bill, saying she hears concerns from people in her hometown of Killdeer about both state agencies struggling to keep up with the demand.

“I believe a performance audit would help point out those problems, get us on the right path,” Oversen said.

The House Political Subdivisions Committee gave the bill a do-not-pass recommendation in a 8-5 vote. Rep. Pat Hatlestad, R-Williston, said the Legislature’s Audit and Fiscal Review Committee already has the authority to request performance audits of any state agency.

Three members of the committee have said they will make it a priority to put the audit requests on the next agenda, Hatlestad said.

“House Bill 1259 is a duplication,” he said.

Company updates saltwater spill cleanup

WILLISTON, N.D. – Cleanup crews have removed nearly 6 million gallons of water from the site of a pipeline rupture north of here, but a large amount of that water is believed to be snowmelt and freshwater from Blacktail Creek.

Meadowlark Midstream, a subsidiary of Summit Midstream, continues to clean up after a pipeline rupture discovered Jan. 6 caused nearly 3 million gallons of saltwater to release near Blacktail Creek, which flows into the Little Muddy River and eventually the Missouri River.

In addition to removing contaminated water and soil, crews are taking samples to define the extent of the impacts below the surface, using absorbent booms and constructing temporary dams to remove contamination, and monitoring surface water and groundwater, the company said in a statement released Tuesday.

A state health official has said the levels of chloride and ammonia at the site of the pipeline rupture were “acutely toxic” to aquatic life, but the extent of the impact to wildlife will likely be undetermined until after the spring thaw.

Testing shows that the levels of chloride have been significantly reduced, Meadowlark said in its statement. For more information, visit http://www.meadowlarkupdate.com.

House wants a say on Industrial Commission orders

BISMARCK – House lawmakers pushed back Friday against recent actions by the North Dakota Industrial Commission by passing a bill that would require broad orders to be reviewed by legislators.

House members voted 61-27 in favor of House Bill 1187 that would void any “rules of general applicability” approved by the Industrial Commission that do not go through a legislative rulemaking process.

As introduced, the bill would have retroactively voided recent orders adopted by the commission related to natural gas flaring and conditioning crude oil for transport, but it was amended to apply only to orders approved after July 31, 2015.

Lead bill sponsor Rep. Keith Kempenich, R-Bowman, said the bill was a reaction to the natural gas flaring goals and oil conditioning standards approved by the Industrial Commission last year that did not go through the Legislature’s Administrative Rules Committee.

“It’s a fairly deep policy shift that they have done here the last year,” Kempenich said in an interview after Friday’s floor session. “I think it does send a message that there is another branch of government that should be involved.”

The Industrial Commission consists of the governor, attorney general and agriculture commissioner.

The House Industry, Business and Labor Committee had issued a do-not-pass recommendation in a 7-4 vote.

Rep. Vernon Laning, R-Bismarck, said the committee considered testimony from the Industrial Commission that although those two orders didn’t go through the full rulemaking process, stakeholders did have opportunities to comment.

The commission also testified that flexibility in the process is needed to rapidly respond to issues affecting public safety and the environment, Laning said.

Rep. George Keiser, R-Bismarck, committee chairman, said the Legislature gives state agencies the authority and responsibility to regulate their industries.

Rep. Marvin Nelson, D-Rolla, said the Industrial Commission is taking a “weak image” of what’s required by law by taking public input but not going through the full administrative process.

“The Industrial Commission is realizing that they are overstepping their bounds. That’s why they take public input,” Nelson said.

Rep. Bob Skarphol, R-Tioga, said there ought to be some middle ground that allows regulatory agencies to do their jobs but provides for legislative involvement for major orders.

“When that order gets to some level, it should have to come back to the Legislature next session for review by this body,” Skarphol said.

Contractor pays reduced fine, leaves state after filter sock investigation

Oilfield waste known as filter socks are shown stockpiled on trailers in McKenzie County in February 2014. Submitted photo

WILLISTON, N.D. – A contractor that stockpiled filter socks in McKenzie County last year paid a $16,000 fine, with $87,000 in fines dismissed, and agreed to no longer operate in North Dakota.

Continental Resources, the leading Bakken oil producer that hired RP Services, also received a notice of violation from the North Dakota Department of Health, but the department dismissed the violation last month and assessed no fines.

Meanwhile, state officials say North Dakota has had no more incidents of illegal dumping of filter socks since a new rule took effect last June. That rule requires companies to store the waste in special containers on site.

The investigation began in February 2014 when a citizen reported that dozens of bags of filter socks were piled on two flatbed trailers in rural McKenzie County and some of the waste was spilling onto the ground.

Filter socks, a waste product generated during oil and gas development, contain low levels of naturally occurring radioactive material and must be hauled out of state for disposal.

The investigation showed that RP Services was not trying to hide the filter socks or get rid of them illegally, said Scott Radig, director of the health department’s Division of Solid Waste. The contractor intended to store the waste on the location until workers could have them disposed of properly, he said.

“They did a sloppy job of that and they admit that, but there’s no indication they were trying to hide them,” Radig said. “They were waiting until spring and they were going to take them to disposal.”

The investigation showed that Continental Resources contracted with RP Services to filter flowback water from hydraulic fracturing operations.

RP Services, which did not have a license to haul radioactive waste, stored the filter socks that resulted from those operations on the property it leased in McKenzie County. Best practices call for those filter socks to be stored in covered, leak-proof containers, which is what North Dakota now requires.

In its response to a notice of violation, Continental Resources disputes that RP Services stored or disposed of solid waste in violation of state rules. Continental writes that the site was an “intermediate staging area.”

Radig estimated that the filter socks had been accumulating at the McKenzie County site from summer 2013 until the citizen reported them in February 2014.

A health department inspector found that some of the socks were leaking onto the ground and had affected the soil, but the waste never posed a threat to the public, according to documents from the investigation.

The health department proposed a $103,000 administrative penalty for RP Services. All but $16,000, or 15 percent, was dismissed after the company agreed to settlement terms, which included properly cleaning up the waste and developing waste handling protocols and training.

“Our general philosophy is that compliance is better than enforcement. Obtaining current and future compliance is more important than just collecting a penalty at the present time,” Radig said.

The state did not require in the settlement that RP Services cease operating in North Dakota, but the parties came to a mutual agreement that it would be better if the company is no longer active in the state, Radig said.

Health officials dismissed last month the notice of violation to Continental Resources, which was based primarily on the fact that RP Services did not have a license to haul radioactive material.

Previously, health officials had informed Continental that subcontractors that generate oilfield waste can transport that waste without a specific permit, Radig said. Because of the previous uncertainty about state rules and the steps Continental took to improve waste management practices and training, the health department dismissed the complaint, Radig said.

Calls to RP Services headquarters in Wyoming were not answered Tuesday. Continental representatives did not respond to an email Tuesday seeking a comment.

Previously, Continental had released a statement saying that the company “demands operational excellence” from its contractors and does not tolerate a contractor’s disregard for regulations.

Continental suspended RP Services as a contractor after learning of the investigation.

Rick Schreiber, director of the McKenzie County Waste Department, said the new state rule has greatly reduced the number of filter socks brought to the local landfill.

But he said he thinks by reducing the fine, the state missed an opportunity to make a statement that oil and gas regulations will be strictly enforced.

“These were blatant issues. We always hear how the state is going to get tough and we’re going to enforce these regulations. Then when it comes down to brass tacks of it, the fines are negotiated down,” Schreiber said. “I’m glad they fined them something. But I definitely think the bark is bigger than the bite.”

The North Dakota Industrial Commission also received public criticism recently for how it reduced the fine for filter socks that were hidden in an abandoned gas station near Noonan.

In that case, the Industrial Commission initially proposed $800,000 in fines for Zenith Produced Water, which generated the filter socks but was not the company that illegally dumped the waste. The commission later reduced the fine to $170,000 because Zenith responded with information about how many filter socks it had generated and officials didn’t think the $800,000 fine would hold up in court, said spokeswoman Alison Ritter.

The commission then suspended $150,000 of the fine, or nearly 90 percent, and collected $20,795.

The settlement also requires Zenith to fully cooperate in an ongoing criminal investigation into the individuals who illegally disposed of the waste.

Both Radig and Ritter said they have not received illegal dumping reports since the new rule took effect June 1 requiring the filter socks to be stored in special containers.

“We really think it’s been effective,” Ritter said.

Oil companies compete in Bakken blood drive

BISMARCK – The North Dakota Petroleum Council is working with United Blood Services to hold a Battle of the Bakken Blood Drive in western North Dakota.

Oil companies will compete for $1,000 to be donated to a charity of their choice. Companies can recruit friends, family and members of the public to donate blood on a company’s behalf.

The drive, expected to become an annual event, began Monday in Belfield and will have scheduled stops in several western North Dakota cities through March 1.

“We are excited to partner with the North Dakota Petroleum Council to ultimately save lives through this blood drive effort and encourage those who have never tried donating blood, to say ‘Yes’ this month,” said Travis Dressler, spokesman for United Blood Services.

A list of registered participating companies and more information is available at http://northdakotaoilcan.com/events/BakkenBloodDrive/.

Faces of the Boom: Priest help fulfill spiritual needs of a growing community

Rev. Biju Antony serves as an associate pastor at St. Joseph Parish in Williston, N.D., Wednesday, Dec. 31, 2014. Kathleen J. Bryan/Forum News Service

Kathleen J. Bryan
Forum News Service

WILLISTON, N.D. — The Rev. Biju Antony was called to serve God when he was just 16.

The youngest of seven children, he was inspired by his mother and the priests who tended to

those suffering in his homeland, the state of Kerala in southwest India.

A biblical verse in the Gospel of Matthew called him then and continues to guide him at St. Joseph Catholic Church in downtown Williston.

“Go unto all the world and baptize them in the name of the Father and of the Son and of the Holy Spirit,” Anthony, 39, said paraphrasing the verse in which Jesus appears to the disciples after his resurrection.

He had heard that North Dakota was one of the coldest places in the world at his first American church in Austin, Texas. But neither frigid temperatures nor an oil boom daunted Antony, who came to Williston in July 2013.

“This was my calling and so I came,” he said.

Along with the Rev. Russell Kovash and the Rev. Joseph Evinger, Antony provides spiritual care to St. Joseph’s parishioners. Visiting the sick, celebrating Mass, counseling and hearing confession are among the innumerable duties in the growing parish.

“It’s a lot, always we are occupied. Williston is a growing community. There are needs to be met,” he said.

Antony had considered becoming a politician or economist as a teen, however, prayer and the words from his “spiritual father” told him “God is calling you for mission work.”

Nearly 14 years of training that included learning a new language and new culture in the northern part of India, missionary work and studying philosophy and history helped prepare him for his ordination in 2003.

At St. Joseph’s, Antony said people come from all over, some without food, clothing and shelter.

“Homeless people just show up and tell their stories. We extend our support and help the needy,” he said, adding the need in India is much greater and expressed surprise that in a developed nation, people are suffering.

Antony said the greatest challenge in helping his flock to see themselves as part of a community, not as individuals.

“We are community-oriented people. Love your neighbor as you love yourself,” he said.

On Tuesdays, the three priests come together for a meal, share, discuss and plan the week. Time is also spent in prayer and reflection. Antony says they have “brotherly love and care for one another.”

One of Antony’s many talents, according to the Rev. Russell Kovash, is his ability to whip up a tasty meal. He said Antony does about 60 to 70 percent of the cooking and has learned to go easy on the hot spices and cater to Kovash’s Czechoslovakian palate.

“He’s an outstanding cook. He had to tone it down for me. Father Biju uses ingredients us Bohemians, us Czechoslovakians like,” Kovash said.

As he began the new year, Antony said his resolution is to serve God and to serve God’s people.

Kovash, in reflecting upon his brothers in priesthood — Father Biju and Father Joseph as they are called — bowed his head and said quietly, “Both are incredible gifts to me.”

ND oil workers see hours cut as oil prices slump

Oilfield workers who had their hours drastically cut due to low oil prices meet with representatives from Bridger Transportation Tuesday, Jan. 27, 2015, at a job fair in Williston, N.D., for crude oil haulers. Amy Dalrymple/Forum News Service

WILLISTON, N.D. – Ahmed Osman recently worked 16-hour days hauling water and sand used to frack oil and gas wells in western North Dakota.

But Osman now sees mostly eight-hour days as companies in the Bakken respond to low oil prices by cutting operations.

“It’s very slow,” said Osman, a truck driver who moved from Fargo to Williston last year.

Osman, afraid he may get laid off, was among many workers who stopped by a job fair in Williston last week for a company in a different sector of the oil industry that is hiring.

“We are worried about it,” Osman said. “That’s why we’re looking at other opportunities.”

North Dakota Petroleum Council President Ron Ness said he expects companies involved in drilling and exploration will make substantial cuts as oil prices hover below $50 a barrel. Many will start by cutting overtime and housing allowances but also may cut jobs, Ness said.

“As we move into spring and into June and those rigs are laddered in, you’re going to see some pretty substantial correction in terms of activity,” Ness said. “If prices change, that will change. At this point, I think companies are preparing to buckle down the hatches and cover the costs and try and reduce costs where possible.”

North Dakota’s drilling rig count was 146 on Friday, down about 40 from mid-December. The Department of Mineral Resources estimates that every rig supports about 120 jobs. Ness estimates that figure at about 180 jobs.

Using those estimates, the drop in drilling rig count has potentially affected 4,800 to 7,200 jobs in North Dakota in six weeks.

“It’s not just the guys on the rigs,” said Williston oilfield worker Shad Frederick. “Everything they use is brought in on a truck.”

Frederick, from Boise, Idaho, works for a company that keeps equipment used for drilling and fracking fueled. He recently returned from two weeks off to find his hours suddenly cut from 80 to 90 a week to 40.

When a major oil company cut back on how many drilling and fracking crews it contracted with, that trickled down to workers like Frederick, as well as others who haul drill pipe, repair equipment or do other work that supports the drilling activity.

A recent CNN story attracted a lot of attention for a quote from MBI Energy Services CEO Jim Arthaud that predicted North Dakota would be down to 50 rigs by June.

“I’d say we’ll lose 20,000 jobs by June,” Arthaud is quoted in the CNN story. Cell phone messages left for Arthaud by Forum News Service were not returned last week.

The Department of Mineral Resources projects the rig count will go no lower than 120.

“We think 50 rigs is pretty pessimistic,” spokeswoman Alison Ritter said. “We don’t see things happening that drastically.

Oil field service companies Schlumberger and Baker Hughes, both major employers in the Bakken, have announced they will have thousands of layoffs in their operations worldwide. Both companies declined to answer how many layoffs are planned in North Dakota.

Halliburton, which employs 1,500 workers in North Dakota, has not had any workforce reductions in the state, a spokeswoman said. The company will continue to monitor the business environment and make adjustments as needed, she said in a statement.

Reduced hours and uncertainty about the low oil prices may cause some workers to return to their home states.

Losing quality employees will be a major concern for oil companies as prices recover.

“It’s hard to get people back,” Ness said. “You want to keep your quality workforce to the extent possible.”

Oasis Petroleum is among the major Bakken operators making cuts this year. The company has announced it will reduce its rig count from 16 last year to six by the end of March, as well as delay other well completions this winter.

While Oasis has had to let a number of contractors go, the company does not plan to lay off any of its 320 workers in North Dakota, said Larry Skaare, director of community affairs.

“We’re trying to do our best as far as a company goes to make sure that all of our employees are protected,” Skaare said. “We’ve got to be able to ramp down and ramp up at the same time.”

Frederick said he knows other service company workers who have left after seeing hours reduced, but he’s trying to find a new opportunity that would allow him to continue earning good wages in North Dakota.

“For somebody with experience, there’s still money here,” Frederick said.

Other sectors of the oil and gas industry will continue to have demand for workers even while drilling slows, such as staff to maintain the wells that are producing. The Department of Mineral Resources estimates prices would need to drop to $15 a barrel before continuing production would cease.

In addition, workers will be in demand to continue building out infrastructure to process and capture natural gas, Ness said.

Bridger Transportation hosted job fairs in Williston and Dickinson last week to hire truck drivers to haul crude oil. The company has about 35 employees in North Dakota and officials said they have enough work to easily double that number of drivers even while oil prices are low.

“The drilling may stop, but oil’s got to be moved,” said Justin Olson, area operations manager.