EARTHWORKS

40% of state drilling regulators have industry ties

It seems the oil and gas industry has been allowed to regulate themselves

E&E | Mike Soraghan

December 19, 2011
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Robert Finne was talking with a friend about the Arkansas Oil and Gas Commission earlier this year when they both started wondering, "Who are these people?"

So they wrote to the commission and asked. Finne, a critic of gas drilling in the Fayetteville Shale, was surprised to learn that most of the commissioners owned oil and gas drilling companies.

"I knew the cards were stacked against us, but I had no idea how badly," Finne said.

Five of the nine members of the appointed commission have their own drilling companies. Two others are officers of oil and gas companies.

Such ties are common among oil and gas officials, according to review of state records and other documents by Greenwire.

More than 40 percent of officials regulating oil and gas production in the top drilling states, records show, come from the industry they are charged with policing.

It is a degree of self-regulation enjoyed by few other industries, if any. And it heightens suspicion among critics of the nation's drilling boom that companies are allowed to damage the environment with impunity.

Supporters of the industry, and the regulators themselves, say it simply makes sense to have technical experts deciding technical issues.

"I would rather have these issues looked at by someone with technical knowledge rather than someone who doesn't," said Jim Springer, spokesman for the Utah Division of Oil, Gas and Mining, which is overseen by a seven-member board, five of whom have oil and gas backgrounds. "They certainly represent the interests of the state very well."

But people unfamiliar with oil and gas production are often surprised to learn that drilling is policed by agencies tied so closely to industry, said Bruce Baizel, staff attorney with Earthworks in Durango, Colo.

"There's still a large presumption that government is looking out for them," Baizel said.

Greenwire reviewed the backgrounds of 95 oil and gas commissioners, board members and agency heads in the top 27 oil and gas states. Of those, 39 had an oil and gas background, or 41 percent.

Among the 71 members of boards and commissions, at least 20 are actively engaged in the business they are regulating.

In most of those states, industry ties are not considered a conflict of interest, or a problematic "revolving door." Instead, they're a job requirement.

The laws creating the governing panels often require that industry be guaranteed seats on commissions, along with royalty owners, local government officials and sometimes environmentalists. Others designate that some number of the board have "substantial experience" in the industry, the environment or fields like petroleum geology.

Those requirements are part of a regulatory system started decades ago with the goal of controlling production and protecting oil from water rather than protecting the environment (Greenwire, Dec. 14).

As advances in the drilling process of hydraulic fracturing fuel the expansion of drilling across the country, these agencies are being called upon to look after the environment, protect human health and resolve disputes between companies and neighbors of their well pads. But regulators rarely seek large penalties for violations and often do not even track enforcement data (Greenwire, Nov. 14).

In addition to being populated from the world of petroleum companies, most of the state oil and gas agencies are expected to both police and promote the industry. As they weigh policies and enforcement, they must balance environmental protection with the need to efficiently develop a state's natural resources (Greenwire, Nov. 30).

Oil and gas agencies in some states, particularly east of the Mississippi River, are not governed by boards or commissions. Instead, they are part of a state department in a governor's administration. In at least eight states, the head of the state oil and gas agency comes from industry.
Setting policy, overseeing enforcement

The oil and gas agencies handle technical issues, such as well spacing and unitization. But they also oversee enforcement and set policy.
Regulators with industry ties
More than 40 percent of oil and gas commissioners, board members and division heads come from the industry they regulate. For each state, the number of commissioners and state directors is followed in parentheses with the number of those who have ties to industry. Source: State records and other documents.


State  Commissioners  Staff Directors
Alabama  3 (0)  1 (0)
Alaska  3 (3)  0 (0)
Arkansas  9 (7)  1 (0)
California  0 (0)  1 (0)
Colorado  9 (4)  1 (0)
Florida  0 (0)  1 (0)
Illinois  0 (0)  1 (0)
Indiana  0 (0)  1 (0)
Kansas  3 (0)  1 (1)
Kentucky  0 (0)  1 (0)
Louisiana  0 (0)  1 (1)
Michigan  0 (0)  1 (0)
Mississippi  5 (2)  1 (0)
Montana  7 (3)  1 (0)
Nebraska  3 (2)  1 (1)
New Mexico  2 (0)  1 (0)
New York  0 (0)  1 (1)
North Dakota  0 (0)  1 (1)
Ohio  5 (2)  1 (0)
Oklahoma  3 (1)  1 (0)
Pennsylvania  0 (0)  1 (0)
South Dakota  0 (0)  0 (0)
Texas  3 (0)  1 (0)
Utah  7 (5)  1 (1)
Virginia  6 (1)  1 (0)
West Virginia  0 (0)  1 (1)
Wyoming  2 (1)  1 (1)
   Number of regulators = 95
   Total with industry ties = 39

In recent months, commissions and agencies have taken the lead in hashing out public disclosure of hydraulic fracturing chemicals.

Arkansas was one of them. The state was among the first to order public disclosure. But activists like Finne were angered when they learned that the companies could get an exemption if the chemical was a trade secret.

The commission also handled an outbreak of earthquakes near an injection well for drilling waste, shutting down such wells in a 1,000-square-mile area. Finne met earlier this year with the commission director, Lawrence Bengal, who explained to them that the commissioners were in charge of deciding what to do about the situation. Finne said it was after that meeting that he started to wonder about the commissioners' backgrounds.

Bengal said it is a misunderstanding to think the business interests of commission members would prevent them from enforcing the law.

"They're implementing the law as written by the Legislature," Bengal said in an interview. "If they were to refuse to enforce those laws, they would be in violation of those statutes."

In Colorado, penalties have risen since 2007, when the state Legislature took away the industry's built-in majority on the state's Oil and Gas Conservation Commission. Still, the panel's largest fine against an active company amounted to less than two hours' worth of profits for the company.

The results of Colorado's restructuring could be seen earlier this month when the executive director of the commission, Dave Neslin, negotiated with industry and environmentalists on a rule requiring public disclosure of hydraulic fracturing chemicals, Earthwork's Baizel said.

"It gave him more latitude in what he could negotiate in terms of public health," he said. "They probably couldn't have gotten that done before the change."

Sometimes, governors pick more commissioners with oil and gas backgrounds than law requires.

For example, in Arkansas, there are five members who own oil and gas production companies, though the law requires three. In Colorado, the small-town mayor who represents local government on the commission also used to work as a welder and fabricator for oil field equipment and trucks.

In Ohio, Robert Chase, a Marietta College petroleum engineering professor, was appointed to the Ohio Oil and Gas Commission in 2008 by Gov. Ted Strickland (D) as a representative of the public. But Chase has an extensive industry background that includes working for Halliburton and Gulf Research and Development Co., and consulting for Columbia Gas, EQT (formerly Equitable Resources) and Cabot Oil & Gas Corp.

In New York, where state officials have taken the most cautious approach to allowing shale boom (development is on hold), the director of the Division of Mineral Resources, Bradley Field, came to state government 25 years ago from Getty Oil Co. Field, through a spokeswoman, declined to comment.

The leadership of the oil and gas agencies has developed at a time when oil and gas drilling has been a back-burner issue in most states, noted Cary Coglianese, law professor at the University of Pennsylvania law school and director of the Penn Program on Regulation.

But with the increasing prominence of the issue many refer to as "fracking" and the surge in production across the country, he said, the ties between industry and regulators are likely to draw more scrutiny and possibly demands for change.

"When a sleepy, obscure issue suddenly becomes important," Coglianese said, "legislation tends to get rewritten."

Tagged with: regulation, oil and gas, drilling

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