Apr 30

Formal Complaint Filed with Texas State Bar Association;

Says Range Resources Lawyer Violated Rules of Professional Conduct

In Attempt to Silence Critics

“We do the right things for the right reasons because that is who we are.”

Ray Walker, Senior Vice President – Chief Operating Officer

on Range Resources’ Web Page, “Our Commitment.”

http://www.rangeresources.com/Our-Commitment.aspx

[…Music up and out, accompanied by birds singing…]

Sadly, Walt Disney is dead; and they don’t make movies like that any longer.  But energy companies still project “good neighbor” fantasies in their PR and marketing outreach.

Meanwhile, Range Resources COO Ray Walker should talk to company attorney David P. Poole about the company’s commitment to being a “good neighbor” and doing “the right things for the right reasons.”

Attorney Poole and two colleagues at an outside law firm have been named in a formal complaint to the Texas Bar Association by former DISH, Texas, Mayor Calvin Tillman.  The details follow:

Violated Rules of Professional Conduct?

The complaint alleges that Poole and his colleagues violated the Rules of Professional Conduct in an attempt to silence critics of Range and the nat gas industry.  (See Links & Resources section below for access to documents cited here.)1

Range Resources (NYSE:  RRC) is a company that investors keep an eye on – perhaps because its 2011 revenue is over one billion dollars and the company is on a short list of nine “most likely takeout targets,” as noted in a UBS research report on Energy Sector Mergers & Acquisitions.2

In addition, the socially responsible investors with whom I communicate want Range to be the best it can be in order to retain its social license to operate.

The formal complaint to the Texas Bar Association by Tillman – and the dueling letters that preceded it – throw sunlight behind the glitzy corporate brand management efforts often seen in the energy industry.

Shareholder Value?

Tillman gets to the heart of the problem faced by Range Resources and many energy companies:  The industry’s sense of entitlement contributes to its loss in public trust.  With continuing behavior like this, will it also lose its social license to operate?  (It happened to the nuclear industry in this country.)

In the last paragraph of a March 11, 2012, reply to Attorney Poole, former Mayor Tillman cautions:

 “It would be interesting to discover what the shareholders of Range Resources would feel about the use of these intimidation tactics.  Not to mention the tens of thousands of dollars that these tactics cost the shareholders in legal fees.  Therefore, this intimidation not only destroys the public image of Range Resources, but costs a tremendous amount of money, and simply does not add value.  Perhaps if Range Resources would like to be viewed as the good neighbor that is portrayed in paid advertisements, you should start acting like one.”1

In the formal complaint presented to the Texas Bar Association, Tillman states that Range Resources issued subpoenas for documents and depositions to Tillman and Sharon Wilson, author of a well-read blog titled Bluedaze Drilling Reform at: http://www.texassharon.com/

According to Tillman, at least two subpoenas were issued to him.  The complaint alleges that Range claimed it needed to depose Tillman and Wilson in order to collect information for its defense against specific lawsuits.

On the contrary, says Tillman (emphasis added), “this tactic is used to silence those who are critical of the natural gas industry and has no substantial purpose, other than to embarrass, delay or burden a third person not involved in the matter.”

The best insight into Range and energy industry behavior is found in the two letters exchanged in March between Range Attorney David Poole and former Mayor Calvin Tillman.  These letters preceded Tillman’s formal complaint to the Texas Bar Association1

In his letter of March 5, Attorney Poole suggests he is not aware of any depositions issued to Tillman.  In Tillman’s March 11 response, he points out that Poole’s name is on every subpoena – and he uploads all the related files to Google Documents.  “Perhaps you have forgotten the numerous depositions you have requested,” Tillman chides.

Platitudes vs. Principles

Poole issues heroic declarations on behalf of Range Resources that sound like a triumph of platitudes over principles.

For example, in his March 5 letter, Poole writes that, “Range respects the rights of those with an interest in our industry….  Range also welcomes an active discourse …. We do, however, expect that dialog to be fact based and to accurately reflect Range.”1

Excellent.  Here are some questions for executives at Range Resources who are committed to doing “the right things for the right reasons.”  These are the kind of fact-based questions investors might ask:

1)    Range Resources says on its website and Attorney Poole can’t resist repeating in his letter:  “We’re proud … to have been the first company to voluntarily disclose hydraulic fracturing fluids on a per well basis.”1, 3  

May we assume that declaration means FULL disclosure?

Perhaps not.  According to a recent research report published by the Sustainable Investments Institute (emphasis added):  “The company [Range Resources] discloses chemicals in accordance with state requirements; it discloses only chemicals determined hazardous by OSHA in Pennsylvania and provided broader disclosure in Texas.  The company does not include proprietary exemptions.4

Which is it?  Is Range Resources proud to voluntarily disclose SOME or ALL chemicals in its hydraulic fracturing fluids?  If it is some – but not all – why not say that?  Would not that exemplify doing “the right things for the right reasons?”

2)    On the subject of voluntary disclosure and welcoming “an active discourse” – will Range champion unsealing legal settlements with landowners? 

Why does the industry force confidentiality and non-disclosure agreements upon property owners and leaseholders?  Why did two newspapers in the Pittsburgh area seek to unseal such a lawsuit settlement involving Range Resources, MarkWest Energy Partners and Energy Group.5  Isn’t it easier to have a fact-based conversation if all the facts are on the table?

3)    How did Range Resources fail to accurately read its own production volumes in Western Pennsylvania in 2010?  How can the company command respect for its operational excellence from both investors and leaseholders?

Range Resources sent letters to gas leaseholders in Western Pennsylvania in August of 2010 claiming that royalties were overpaid for “several production periods.”  As a consequence, it would deduct the alleged overpayment from future royalty checks.

Does Range have a public explanation for why it cannot accurately manage leaseholder and company finances in a task that is fundamental to the industry?  I tried repeatedly at the time to engage in “active discourse” with Range but it declined to respond.

This is not small potatoes, according to the company’s 10-K filing for 2010 with the U.S. Securities and Exchange Commission.

Specific to its operations in the Marcellus Shale in Pennsylvania, Range states on p. 22 (emphasis added):

“This has been our largest investment area over the last three years.  We had 422 proven drilling locations at December 31, 2010.  Our 2010 production was 166% greater than 2009.  During 2010, we drilled 113.6 net development wells and 3.9 net exploratory wells in the Marcellus Shale, of which 114.4 net wells were successful.” 6 

How credible is the 166% increase in production when the company admitted in the same year that it had misread its production volumes?

And how many leaseholders across those more than 400 “proven drilling locations” received letters in which Range said it apparently could not accurately read production and allegedly overpaid royalties?

But if everything is copacetic, why not answer questions?  “Do the right thing for the right reasons” – because that’s who you are.  Aren’t you?

Links & Resources

1 Links to three documents involved in a complaint to Texas State Bar Association follow.  The complete list of documents (with links) can be found in Tillman’s March 11 response to Attorney Poole (below).  This includes subpoenas, deposition requests, quash requests.

2 UBS Investment Research: Energy Sector M&A – Specific to Range, the report notes: “We believe it is a matter of when not if Range Resources is acquired.”  pdf file (See especially pp. 1, 4-8):  EnergySectorMA

3 Range Resources Web Page “Commitment To The Environment, Safety, Health & Local Communities – See first paragraph after intro paragraph (in blue) where the company states: “In 2010, Range was the first company to voluntarily disclose hydraulic fracturing fluid contents on a per well basis.”  http://www.rangeresources.com/getdoc/fecf2d47-a7e9-4b8e-b80d-395fc52f98ea/Commitment-to-the-Environment,-Safety,-Health—Lo.aspx

4 Discovering Shale Gas:  An Investor Guide to Hydraulic Fracturing (March 8, 2012) – published by Sustainable Investments Institute with funding support from IRRC Institute; see pp. 64-65.  You can download a pdf file of the 74-page report at this link: http://www.irrcinstitute.org/projects.php?project=56

5 Two newspapers have sought to unseal a “highly publicized” lawsuit settlement with landowners critical of Range Resources and other energy companies.

6 Range Resource Corp Form 10-K filed with the U.S. Securities and Echange Commission for the fiscal year ended December 31, 2010 – Pdf file:  RangeResources_10K_20110301

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-formal-complaint-filed-with-texas-state-bar-association-alleges-range-resou/  Accountability Central is part of the Governance & Accountability Institute, Inc.


 

Mar 12

Environmentalists & Tea Party Fight Property Rights Abuses;

Plus Sensenbrenner’s H.R. 1433 ‘Property Owner’s Protection Act’

Will Fuel Broader Eminent Domain Discussion

 

New Coalition for Property Rights in Texas includes environmentalists & Tea Party members. Photo courtesy of David McFatridge

The ‘sleeper’ issue of shale gas extraction is waking up; and the energy industry is not happy to have sunlight detailing the adverse effects of eminent domain on private property rights.
We are seeing a renewed focus on eminent domain “taking” – in all its variations:
  • Two courts in Texas have recently ruled in favor of landowners vs. energy & pipeline companies.  One involves an appeals court reinstating a restraining order on TransCanada for its Keystone Pipeline project.  Though such legal victories can be short lived, one Texan observed, “This is pretty big for Texas!” 1
  • New Texas statewide coalition for private property rights is supporting landowners in the path of the Keystone XL pipeline there.  The coalition includes environmentalists and Tea Party conservatives who say the pipeline project tramples property rights and endangers water supplies in East Texas. 2
  • Challenges are also developing to Texas Rule 37, which landowner advocates say “takes away the mineral owner’s right to negotiate a fair and equitable lease.”
  • The U.S. House passed Congressman James Sensenbrenner’s (R-WI) Property Rights Protection Act (H.R. 1433).  The House bill enjoyed bipartisan support including Representatives Maxine Waters (D-CA), who is a co-sponsor with Sensenbrenner; Sheila Jackson Lee (D-Texas) and Lamar Smith (R-TX).  It now goes to the Senate.3

The Property Rights Protection Act is a start to correcting the abuses of eminent domain – but only a start, because it addresses just part of the problem referred to as “economic development takings.”  The infamous example of this was the 2005 Supreme Court decision on Kelo vs. New London, Connecticut. 4

3rd Rail – Natural Resource Takings

The new House Bill does not address the “third rail” of eminent domain takings, known as “natural resource development takings.”

This is the form of eminent domain taking where government and energy companies join to seize private property rights (surface and/or subsurface) for gas/oil pipelines, compressor stations, underground nat gas storage reservoirs and more.

I call it the third rail of eminent domain because, to date, even property rights advocates like the Institute for Justice (which helped take the Kelo case to the Supreme Court) decline to step up to natural resource development takings because, they tell me, of the “public use” interpretation of the courts.

Not so at the grass roots level where there is increasing demand for change.  From Texas to New Jersey, citizens are challenging the domestic energy cartel comprised of government and industry.

Domestic Energy Cartel

It is not stretching a point to say that eminent domain puts landowners in a face-off with the equivalent of a cartel comprised of energy companies and government, because the power of eminent domain allows corporations – backed by government – to control pricing and competition (i.e., “just compensation” and what constitutes “public interest”).  By definition, that is a cartel.

This is not remotely connected to free-market capitalism.

Private property owners do not have much, if any, leverage when it comes to negotiating “just compensation” (the sound of laughter is coming from the energy companies).

This profitable power of “taking” is why energy companies want “forced pooling” in Pennsylvania; and why New York State has “compulsory integration.” Texans who value their property rights must deal with “Rule 37,” another variation of eminent domain by which government regulators permit gas & oil companies to seize mineral rights from private property owners.

Texas Coalition for Property Rights

Texans are fighting back.  According to a media advisory issued by the Coalition for Private Property Rights:

“’Texas politicians talk tough on eminent domain, but with Keystone we have a pipeline acting as a ‘common carrier’ and bludgeoning private property owners with eminent domain when there’s a real question whether it meets the legal requirements to do so,’ said Debra Medina, former Republican gubernatorial candidate and director of We Texans.”

Last month, the Coalition held press conferences in Dallas, Houston, Austin and San Antonio.  As reported by the Dallas/Fort Worth Star-Telegram (emphasis added): “… the [Keystone XL] pipeline dispute seems certain to reopen a legislative debate over eminent domain powers, which governmental entities and so-called common carriers such as utilities and pipelines use to acquire land for public projects after compensating the owner.”  (Energy companies are laughing again.)

Calvin Tillman, former mayor of DISH, Texas, told this writer that property rights abuse is what unifies the Coalition.  These groups include:  We Texans, Independent Texans, Texans for Accountable Government, and Texans Uniting for Reform and Freedom.

Texas Rule 37

DISH, Texas, is a small community that sits atop the Barnett Shale area, near Fort Worth. Tillman has 5 years of experience dealing with the energy industry and regulators as an elected official in DISH, including two terms as mayor.

In a statement he released on the subject of Texas Rule 37, Tillman says: 5

“The utilization of the Rule 37 exception takes away the mineral owner’s right to negotiate a fair and equitable lease.  Furthermore, it is being used to intimidate property owners into signing leases that solely benefits the production company.”

He continues:  “Rule 37 does not encourage a free market, with a competitive bid process.… because mineral owners are constantly threatened with ‘If you don’t sign for x dollars, we will take your minerals for free.’  How are you supposed to negotiate a ‘fair market price’ under those conditions?”

Finally, Tillman comments on the other half of the domestic energy cartel – government regulators in Texas (emphasis added):

“The State of Texas has allowed this abuse for far too long.… The three Railroad Commissioners take large amounts of campaign contributions from the very companies they are transferring this property to.  … this gives the distinct impression of crony capitalism, not the free market system we expect in Texas.”

Links & Resources

1 Two recent Texas court decisions related to private property rights & eminent domain:

  • Court of Appeals, 6th Appellate District for the State of Texas – March 2, 2012, No. 06-12-00026-CV; RE:  The Crawford Family Farm Partnership:  “Now, therefore, it is ordered that TransCanada Keystone Pipeline, L.P., is restrained from entering on the Crawford Family Farm Partnership and from performing any and all on-site activities that disturb the surface or subsurface of the land, pending this Court’s determination of the petition for writ of mandamus or further order from this Court.”  Pdf file of Appellate decision:  Court_of_Appeals_Order[1]   
  • Supreme Court of Texas – March 2, 2012, No 09-0901; Texas Rice Land Partners v. Denbury Green Pipeline-Texas.  In its Conclusion, the Texas Supreme Court states:  “Pipeline development is indisputably important given our State’s fast-growing energy needs, but economic dynamism – and more fundamentally, freedom itself – also demand strong protections for individual property rights.”  A copy of the 18-page decision can be downloaded at this link: http://stateimpact.npr.org/texas/2012/03/02/texas-supreme-court-reinforces-denbury-decision/

2 Texas becomes a battleground in Keystone XL pipeline controversy, by Dave Montgomery, Dallas/Fort Worth Star-Telegram, February 21, 2012 – http://www.star-telegram.com/2012/02/21/3752596/texas-becomes-a-battleground-in.html

3 House votes to overturn Supreme Court Decision on eminent domain, by Pete Kasperowicz, THE HILL, February 28, 2012 – http://thehill.com/blogs/floor-action/house/213129-house-votes-to-overturn-supreme-court-property-rights-decision

See also:

  • Property Rights Protection Act (H.R. 1433) – now referred to Senate – text of bill:

http://thomas.loc.gov/cgi-bin/query/F?c112:4:./temp/~c112YJt8wH:e533:

  • Congressman’s Sensenbrenner’s (R-WI) website for comments:

http://sensenbrenner.house.gov/News/DocumentSingle.aspx?DocumentID=282349

4 Kelo v. City of New London, Wikipediahttp://en.wikipedia.org/wiki/Kelo_v._City_of_New_London

5 Oil and Gas Companies Are Allowed to Take Privately Owned Mineral Interests Without Compensation, Statement on Texas Rule 37 by Calvin Tillman, Former Mayor of DISH, TX.  February 2012.   Texas Rule37

NOTE:  This article is cross-posted on the Accountability Central website at this link:   http://www.accountability-central.com/voices-featured-commentators-and-bloggers/mike-benard-columns/  Accountability Central is part of the Governance & Accountability Institute, Inc.

Feb 22
Shale Gas Bubble?
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Chesapeake Energy’s Cash Troubles;

Plus Nine “Most Likely” Takeover Targets in Shale Gas

Are We Watching the Tipping Point?

Perhaps Real Shale Gas “Insurgents” ARE the Industry?

Watching current events in the shale gas industry recalls the warning from Andy Grove, co-founder of Intel:  Success contains the seeds of its own destruction.

  • Following persistent rumors in Oklahoma and Texas, Chesapeake Energy announced it will raise $10-$12 billion through asset sales in order “to get through the next year or so without going bankrupt,” according to Forbes magazine.1  Chesapeake Energy is said to be the nation’s second-largest nat gas producer after ExxonMobil.
  • Range Resources – once dubbed “king of the Marcellus” by Forbes – is on the ‘short’ list of nine Exploration & Production companies viewed as “most likely” takeover targets in a research report by UBS.2

Chesapeake Energy in Trouble?

At least two weeks before Chesapeake Energy announced updates to its 2012 operating plan, industry rumbles from Oklahoma to Texas suggested the company is in trouble.

The rumors came via folks connected to the energy industry; and they speculated that time and money are running out and, yes, maybe even bankruptcy is a possibility for Chesapeake.  These rumors noted that Chesapeake was already cutting contracts for drilling, and claimed that employees in Oklahoma City are worried about jobs.

Such rumors are just that and the reference to possibly “going bankrupt” in Christopher Helman’s Forbes piece (Feb. 13) was soon deleted from the lead paragraph – an exercise in measured reporting given the complexity of the company.

Junk Bonds

Yet, the company’s bond credit ratings are BB+, which is “non-investment grade speculative” – in other words, junk bonds.3

To add to its current challenge, Chesapeake is on the longer list of 13 “likely” takeover targets in the same UBS research report on Energy Sector Mergers & Acquisitions.2 

Chesapeake did not make the UBS short list of nine “most likely takeout targets” that includes Range Resources, Southwestern Energy, Anadarko Petroleum and Cabot Oil & Gas.  Instead, Chesapeake Energy moved into the “less likely takeout targets,” based on a number of factors detailed in the report (see footnote 2 under Links & Resources below for a copy of the report).

UBS researchers did note (emphasis added), “While CHK significantly outspends organic cash flow, the company is able to meet its cash flow short fall with proceeds from sale of non-E&P [Exploration & Production] assets, joint ventures, VPP [Volumetric Production Payment] and royalty trusts.”

This point is echoed in the Forbes piece which notes (emphasis added) that the company “is in a bind. … Chesapeake isn’t generating enough cash.”  And “… there’s no telling whether even Aubrey McClendon’s legendary financial finagling will be able to save the day.”

Forbes said Chesapeake’s updated financial plan “starts with the creation of a ‘volumetric production payment’ [VPP] structure tied to its Texas Panhandle Granite Wash Fields.”

Volumetric Production Payment – VPP

It characterizes VPPs as follows (emphasis added):

“These VPPs are a convoluted, but not unusual, structure whereby Chesapeake receives cash upfront (about $1 billion in this case) in exchange for delivering future volumes of oil and gas from the designated fields. … But for all intents and purposes it’s like issuing debt that needs to be repaid in oil and gas instead of cash.”

Deborah Rogers on Failed Production Models

I asked Deborah Rogers, founder of the Energy Policy Forum, for her assessment of the Chesapeake announcement.  She lives in the Fort Worth area and is described by another Texan as “wicked smart.”

Her financial career began in London where she worked in venture capital financing.  Returning to the United States, she worked as a broker with Merrill Lynch and Smith Barney.  In addition, she has served on the six-member Advisory Committee for the Federal Reserve Bank of Dallas.4

In public forums, she challenges the energy industry as a “failed production model.”  In her view, “I believe shale gas is more about exploiting capital markets than exploiting natural resources,” she says.

“It is about drilling for dollars in the financial markets.  Natural gas is simply a façade which enables this to occur more efficiently,” she says. “Hence the unmitigated disregard for disciplined drilling which would keep prices at viable levels.”

Assessing Chesapeake’s latest announcement, Rogers says (emphasis added):

“Firstly, VPP’s (volumetric production payments) are a form of off-balance-sheet financing that McClendon is trying to spin to sound like a clever accounting tactic. He has been using them for quite some time.”

“In my opinion, I think Chesapeake was essentially forced to resort to VPPs because other funding sources were drying up for them.”

“Nevertheless, debt is debt.  Whether you pay in cash or in production, you still have to pay at the end of the day and that is a form of debt no matter how much spin you care to apply. Chesapeake already has a great deal of debt so this will merely add more.”

“Likely Takeout Targets”

Elsewhere in the energy sector, there is a lot of takeover talk.  Matt Pitzarella, PR guy for Range Resources, tells Bloomberg/Businessweek, that the company doesn’t comment on such speculation.5

Pitzarella gained notoriety at an industry PR conference in Houston where he recommended the use of military psy-ops specialists as part of the shale gas industry’s effort to rebuild public trust.  At the same conference, a colleague of his – Matt Carmichael of Anadarko Petroleum – said (emphasis added), “we are dealing with an insurgency,” referring to citizen and property owner opposition in drilling communities.6

These remarks are on the public record (see footnote 6).  Given the industry’s behavior, why is it puzzled about the fact that it is losing public trust?  (The industry acknowledges it is losing in the court of public opinion.)

Meanwhile the financial underpinnings of the industry continue to shift – or slide, as the case may be.  Here are two excerpts from the UBS research report:

  • Range Resources – “We believe it is a matter of when not if Range Resources is acquired.”
  • Anadarko Petroleum – “… we believe Anadarko is a willing seller and note CEO Jim Hackett has been a seller in the past (Seagull Energy, Ocean Energy) and would be one of the biggest compensation beneficiaries amongst E&P [Exploration & Production] CEOs from a change in control.”

Perhaps some shale gas companies will wake up to discover a new kind of “insurgent” from their own industry – instead of among citizens and property owners.

 Links & Resources

1 “Chesapeake Energy’s New Plan:  Desperate Measures For Desperate Times,” Forbes, February 13, 2012 by Christopher Helman – http://www.forbes.com/sites/christopherhelman/2012/02/13/chesapeake-energys-new-plan-desperate-measures-for-desperate-times/

The online lead paragraph was edited to delete the reference to possible bankruptcy.  Originally, it read:  “This morning Chesapeake Energy announced a new financial plan that it hopes will allow it to raise the billions in cash it needs to get through the next year or so without going bankrupt.”

The Forbes article also contains hot links to Chesapeake’s “new financial plan.”

2 UBS Investment Research: Energy Sector M&A – pdf file:  EnergySectorMA    See especially pp. 1, 4-8.

3 Wiki Bond Credit Ratinghttp://en.wikipedia.org/wiki/Bond_credit_rating

Investopedia on Corporate Credit Ratinghttp://www.investopedia.com/articles/03/102203.asp#axzz1mrj0fbhK

4 Energy Policy Forum, founded by Deborah Rogers http://energypolicyforum.com/

5 “Range Resources at 56 Times Profit Cheap in Shale Boom:  Real M&A,” February 14, 2012, Bloomberg by Tara Lachapele and Mike Lee – http://www.bloomberg.com/news/2012-02-15/range-resources-at-56-times-profit-cheap-in-shale-boom-real-m-a.html

6 “Oil Executive:  Military-Style ‘Psy Ops’ Experience Applied,” November 8, 2011, CNBC by Emon Javers – http://www.cnbc.com/id/45208498

The CNBC coverage includes audio links for the comments made by Pitzarella and Carmichael.

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-shale-gas-bubble-chesapeake-energys-cash-troubles-plus-9-most-likel/  Accountability Central is part of the Governance & Accountability Institute, Inc.

Jan 25
Brit Frac Fantasy
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Fracing Contaminates Ground Water; but Drill Anyway,

Says Brit at Adam Smith Institute;

Uninformed Discussion of Mineral Rights, Geology from

Advocate of Libertarian & Free Markets;

Ignores Domestic (NIMBY) Energy Cartel

A Brit writing in Forbes magazine says that fracing does contaminate ground water, but we should drill regardless.

Writer Tim Worstall is a Fellow at the Adam Smith Institute, a “libertarian and free market” think tank headquartered in London.  He also writes a column for Forbes.1

His premise is that, as long as we understand the risks, we can choose to make a trade off for the benefits – such as an abundant supply of natural gas that is preferable to burning coal.

Worstall says, “We simply have to weigh up the costs and benefits of various courses of action and thus, if we’re to be rational at least, pick those that provide the most benefits as against the least costs.”

Trading risks for benefits is something we do in life.  So it can be a reasonable starting point for discussion.  Except the Worstall World, unfortunately, is not on Planet Earth.

Frac Fantasy World

The Worstall World is neatly bounded by what he considers to be logic, economic tenets and “Coasean bargains.”2  Complex issues such as mineral rights, property rights, geology and contamination are simple – or simplistic – in this fantasy world.

According to Worstall (emphasis added):  “And those who own the land above the shale that is frakked also own the gas (matters are very different in Europe where it is mostly the government which owns fossil fuels).  So when they receive royalties for the gas that is frakked they are being compensated for that pollution.  If they think that the royalties on offer are not sufficient to so compensate them then they are entirely free to refuse permission to drill. As indeed some do.”

He declares, “Everyone gets what they want ….”  Really?

For example (emphasis added):  “Those who prefer money to clean water will allow drilling, those who don’t will not.  Royalty rates and quite probably the natural gas price will change to reflect those individual decisions.”

In other words, if one property owner chooses to permit drilling on his property he makes his bet and lives with the consequences whether it’s a stream of royalty payments or contaminated water.  If his neighbor chooses not to permit drilling, that is his bet and he will keep his clean water but get no royalties.

Where to begin with our British colleague?  This charming exercise illustrates the difference between theory and skin-in-the-game reality.

Mineral Rights

Let’s start with mineral rights.  In Europe, Worstall suggests, governments rather than private property owners generally own the fossil fuels.  In the U.S., he believes, private property owners possess the mineral rights.  Even if they do – and not all do – there is nothing simple about mineral rights.

I can’t speak about European mineral and property rights; but as a former gas leaseholder in Pennsylvania, I ended up fighting a two-year eminent domain legal battle launched by Spectra Energy of Houston, Texas, which was backed in its “taking” of property rights by the Federal Energy Regulatory Commission (FERC).  (Eminent domain in the U.S. can only take place under the authority of government.)

We and about 150 other property owners had the mineral rights; but Spectra Energy took them in order to construct a 12 billion cubic feet underground natural gas storage reservoir (with pipelines, 5,000 hp compressor station and 13 injection/withdrawal wells).

Even though Pennsylvania has more underground nat gas storage reservoirs than any state in the continental U.S., FERC, a federal judge and Spectra Energy declared this project “vital” to public interest.

In fact, it was vital to Spectra Energy’s business model because the company wants to cash in on what it views as the Marcellus Shale ‘gold rush.’

This isn’t free market capitalism, this is an energy cartel comprised of corporations and government, because the power of eminent domain allows corporations – backed by government – to control pricing and competition (i.e., “just compensation,” what constitutes “public interest,” and what you might prefer to do with your property asset).

There is no energy related eminent domain “taking” action that I am aware of where the private property owner can just say ‘no thank you.’

There is no “Coasean bargain” here.  No free choice.  No free market.

By the way, in the U.S., some states like New York can compel property owners to be integrated into a drilling unit even if they choose not to participate in drilling.  It is called compulsory integration, and it is another form of eminent domain.

Then there is geology.

Geology

Contrary to what Worstall seems to think, the earth is not solid rock, nor are layers below the surface hermetically sealed.

Paul Hetzler, a former Environmental Engineering Technician with New York’s Department of Environmental Conservation (DEC), says it succinctly: “… all geologic strata leak to some extent.  The fact that a less-transmissive layer lies between the drill zone and a well does not protect the well from contamination.”3

“A drinking water well is never in ‘solid’ rock.  If it were, it would be a dry hole in the ground,” Hetzler notes.  “As water moves through joints, fissures and bedding planes into a well, so do contaminants.  In fractured media such as shale, water follows preferential pathways, moving fast and far, miles per week in some cases.”

Even global energy giants like Schlumberger have published textbooks and technical papers that acknowledge such significant risks of shale gas extraction as aquifer contamination and earthquakes.  From one Schlumberger textbook (emphasis added):

“Despite recent advances in the cementing of oil and gas wells, many of today’s wells are at risk. … The environmental impact of contaminating a single fresh water aquifer is extremely serious.”4

One might have hoped that Mr. Worstall at the Adam Smith Institute in London would bring more thought to a serious issue.

He could, for example, look at leadership benchmarks among shale gas executives.  How many, he might ask, have chosen shale gas drilling on their own property?

Gas Exec NIMBYs 

Libertarians and free market advocates might be surprised to learn that today’s shale gas executives are the new NIMBYs (Not In My Back Yard).  Despite queries to energy companies and industry associations, I have been unable to identify ANY executives who have such operations on THEIR property.

So we have a free market world where gas execs want these operations on your property, not their property.  Wonder why?

And please – theorists should refrain from arguing that execs live in the cities and drilling is in the country.  Is it possible that anyone still believes that?  Shale gas companies drill everywhere – from school yards to grave yards to front yards. High-volume hydraulic fracturing takes place in rural, suburban and urban locations (e.g., Fort Worth to name just one location).  

Mr. Worstall’s logic fails to grasp this.  In fact, he is rather flippant on this subject (emphasis added):  “Myself I tend to thinking that [alternatives to fracing are] worse than having to truck drinking water into a few sparsely populated rural areas: but I agree that this is an opinion, not a fact.”

Perhaps Mr. Worstall’s own website offers an explanation.  It states: “Tim Worstall is an Englishman who has failed at many things.”5  

Links & Resources

1 Fracking Does Contaminate Groundwater:  Carry on Drilling Regardless, by Contributor Tim Worstall,  Forbes magazine, December 10, 2011 –   http://www.forbes.com/sites/timworstall/2011/12/10/fracking-does-contaminate-groundwater-carry-on-drilling-regardless/3/#

2 “Coasean bargain” is a term that takes its name from British-born Ronald Coase who received the Alfred Nobel Memorial Prize in Economic Sciences in 1991.  Professor Coase is the research advisor to the Ronald Coase Institute; and he celebrated his 101st birthday in December 2011.  According to the Institute’s website, its mission is (emphasis added):  “To better understand how real economic systems work, so that individuals and societies have greater opportunities to improve their well being.”

http://www.coase.org/aboutronaldcoase.htm          http://www.coase.org/abouttheinstitute.htm

http://www.econlib.org/library/Enc/bios/Coase.html

  • According to a Wiki entry, “The [Coase] theorem states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. In practice, obstacles to bargaining or poorly defined property rights can prevent Coasian bargaining.”  Link: http://en.wikipedia.org/wiki/Coase_theorem

3 Fracing WILL Contaminate NY’s Acquifers – Former DEC Environmental Engineering Technician – Comments from Paul Hetzler, former Environmental Engineering Technician with New York’s Department of Environmental Conservation (DEC) at this link: http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-fracing-will-contaminate-nys-acquifers-former-dec-environmental-engineer/

4 Does Cement Crack? – Part 2:  Contains Schlumberger textbook reference & source – http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-does-cement-crack-part-1/

5 Tim Worstall Websitehttp://timworstall.com/about/

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-fracing-contaminates-ground-water-but-drill-anyway-says-brit-at-adam-smi/   Accountability Central is part of the Governance & Accountability Institute, Inc.

 

Jan 9

Fracing WILL Contaminate New York’s Acquifers,

Says Former DEC Environmental Engineering Technician;

Also, Beware of Water Testing by Shale Gas Companies

 

“Hydraulic fracturing WILL contaminate New York’s aquifers (emphasis added).”

Not MIGHT – WILL contaminate, according to a former Environmental Engineering Technician with New York State’s Department of Environmental Conservation (DEC).

Paul Hetzler spent three years with the DEC’s Region 5-South managing scores of groundwater remediation projects from 1994-1997.  Region 5 serves nine counties in the Eastern Adirondacks and Lake Champlain area.  It encompasses the northeastern tip of New York State and includes three-quarters of the Adirondack Park.

Paul Hetzler, former Environmental Engineering Technician with NYS DEC.

  “If you were looking for a way to poison the drinking water supply, here in the Northeast you couldn’t find a more chillingly effective and thorough method of doing so than with hydraulic fracturing.”  Hetzler initially made his remarks in a commentary published in the Watertown Daily Times.1

He notes, “all geologic strata leak to some extent.  The fact that a less-transmissive layer lies between the drill zone and a well does not protect the well from contamination.”

“A drinking water well is never in ‘solid’ rock.  If it were, it would be a dry hole in the ground.  As water moves through joints, fissures and bedding planes into a well, so do contaminants.  In fractured media such as shale, water follows preferential pathways, moving fast and far, miles per week in some cases.”

He makes three key points among others:

  • “If your well goes bad, neither you, nor your children, nor their children will ever be able to get safe, clean water back.”
  • “Chemicals injected into the aquifer will persist for many lifetimes.”
  • ‘’Drill for gas, absolutely, but develop safe technologies first.”

In a follow-up exchange, he told this writer:  “I don’t claim that every potable well in a hydraulic fracturing zone would become contaminated, but some certainly will.”

“Subsurface conditions vary considerably, and the results of injecting pollutants into the aquifer at a particular point are hard to predict,” he adds.  “Even small heterogeneities [differences] in a stratum can lead to different outcomes.”

“Pumping rates also influence whether a well takes a hit – two neighboring wells might become contaminated while a third remains OK.”

Hetzler made a recommendation, coupled with a warning:

“Since contamination can show up months or even years after a pollution event, I’d advise all residents near a hydrofracturing operation to get monthly lab analysis on their water for several years after drilling ceases.  Obviously this is quite a burden.”

Water test results, he warns, may depend on who does the testing.  Based on Hetzler’s DEC experience, he does not have complete confidence in gas companies – described here as “RPs” or “Responsible Parties.”

“One would like the gas company to pay for this, but I’ve seen RPs (responsible parties) use tactics that reduce the likelihood of detecting contamination, such as using inappropriate methods (e.g. EPA 602 for wastewater instead of a 503.1 for drinking water) or having method detection limits set above safe drinking water thresholds, which leads to a meaningless report of ‘nothing detected’ (above a very high level).  You have to be right on an RP in everything they do.”

Hetzler said he has written to the DEC and filed a public comment regarding the draft Supplemental Generic Environmental Impact Statement (SGEIS).  Public comments will be accepted up until January 11, 2012.2

Today, Hetzler works for the Cornell Cooperative Extension as a horticulture and natural resources educator.  He does not speak for Cornell or the Extension office.

 Links & Resources

 1 “Hydrofracking sure to contaminate water”Watertown Daily Times, December 13, 2011.  Reference link:  http://www.watertowndailytimes.com/article/20111213/OPINION02/712139975  Pdf file: Watertown Daily Times | Hydrofracking sure to contaminate water

2 Public Comments should be made by January 11, 2012 on the revised Supplemental Generic Environmental Impact Statement (SGEIS).  Following are links and sources for information.

  • New York State Department of Environmental Conservation:  High-Volume Hydraulic Fracturing Comments – Comments can be submitted by following instructions on the DEC website at this link:   http://www.dec.ny.gov/energy/76838.html
  • In addition, consult this user friendly citizen guide for assistance in responding to the DEC online.  You’ll find analyses by many knowledgeable folks including Chip Northrup, energy industry investor, and Lou Allstadt, former Executive VP of Mobil Oil Corporation: http://www.sourcewatch.org/index.php?title=DSGEIS_Responses

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-fracing-will-contaminate-nys-acquifers-former-dec-environmental-engineer/  Accountability Central is part of the Governance & Accountability Institute, Inc.

 

Dec 21

NYS Senate Committee Told:  Picture a Niagara Falls of Wastewater from

Fracing with No Comprehensive Plan to Safely Deal with It;

Flowback Frac Water Not Designated ‘Hazardous’

DEC Outlines ‘Options’

But Will NY Senate Committee Act?

The New York State Department of Environmental Conservation (DEC) promises  high-volume hydraulic fracturing can be done “safely.”1
Based on that promise, how will New York State deal with the billions of gallons of toxic wastewater that eventually will be produced?
To understand the challenge, picture Niagara Falls with one-half million gallons of water per second pouring over it.
Then consider 62,000 estimated hydraulic fracturing wells in New York State, producing 62 billion gallons of toxic wastewater.  This could easily be what New York citizens face if Democrat Governor Andrew Cuomo opens the door to hydraulic fracturing in New York State.

This was part of the testimony of Sandra Steingraber, Ph.D. (biology), author and Distinguished Scholar in Residence with the Environmental Studies department at Ithaca College.  She was among 14 individuals from government, industry, academia and environmental organizations testifying by invitation only for the New York State Senate Standing Committee on Environmental Conservation.2

Held in Canandaigua, New York, the subject of the 6-hour public hearing was “to examine waste water produced from hydraulic fracturing.”  The committee and the hearings are chaired by State Senator Mark J. Grisanti (R, 60th District).  He was joined at the Canandaigua hearing by State Senator Patrick Gallivan (R, 59th District).2

“The volume of wastewater generated by fracking is immense,” Steingrabber told the Senate Committee on December 12.3

She explains (emphasis added):  “In the Marcellus Shale, between four and nine million gallons of water are required to frack a single well.  At least one million of these gallons returns to the surface as wastewater.”

“Sixty-two thousand gas wells are envisioned for New York State,” she testified.  “If all those wells are fracked only once – a highly conservative assumption – the total amount of wastewater generated is the number 62…with nine zeros after it.” 

 62 Billion Gallons of Toxic Wastewater

“To visualize that amount of water, consider that 500,000 gallons of water go over both sides of the Niagara Falls every second.  The amount of wastewater that would be generated in New York State from fracking, if we decide to permit it, is equal to the volume of water cascading over Niagara Falls for 35 straight hours.”   

Sandra Steingraber, Ph.D. (biology)

“So, imagine standing in front of the Niagara Falls for 35 hours.  Now imagine that all the cascading water you see is radioactive and full of toxic chemicals, and your job is to figure out where to put it so that it won’t come in contact with any person or any other body or water or the soil or the air.  Forever.”

A key question is whether the DEC has a plan for all that toxic wastewater?

Steingrabber notes (emphasis added):  “The where-to-put-it question is not adequately addressed in the [DEC’s] draft generic Environmental Impact Statement, which does not put forth a comprehensive plan for waste disposal nor explicitly prohibit fracking waste from entering sewage treatment plants.”

In fact, water treatment plants are part of the DEC plan.

DEC ‘Options’

Speaking earlier in the day, DEC Deputy Commissioner Eugene Leff (Remediation & Materials Management) testified, “We have identified many measures to protect our drinking water, our air, our land and our streams.”4

He said (emphasis added):  “At this point in time, besides recycling, the disposal methods anticipated to be proposed for both flowback water and produced water are injection into disposal wells or processing at water treatment plants.”

Despite the DEC’s statement that water treatment plans are an option for the disposal of hydraulic fracturing wastewater, Leff noted (emphasis added), “Presently, there are no plants that are authorized to accept waste water from high-volume hydraulic fracturing in New York.

He added:  “However, a facility dedicated to the treatment of wastewater from the drilling industry may be proposed.  And existing plants may seek to address these industrial wastewaters – or other technologies could be developed to treat such waste water as the use of this technology continues.”

As it turned out, invited speakers at the hearings included representatives from waste management companies who described “other technologies” they say will safely manage the toxic wastewater issue.  Such technologies include:

  • Desalination
  • Onsite decontamination using closed loop systems
  • Forward osmosis using polyamide membranes.

Regarding the promise of these various methods, Steingraber said while the volume of wastewater may be compressed, the total mass of toxic, radioactive chemicals remains the same – only more concentrated (emphasis added):

“Newton’s laws of nature still apply:  matter can neither be created nor destroyed; elements like arsenic are absolutely persistent; radionuclides don’t just disappear.”

“The volume of the wastewater may decrease, but the total mass of toxic, radioactive chemicals stays the same and, indeed, is even more concentrated within the smaller volume of fluid that remains.  And this even-more-poisonous material still requires transfer and injection in underground wells or disposal somewhere.”

She urged the Senators to take two first steps:

  1. “First, waste that is hazardous should be called hazardous waste and treated as such.”
  2. “Second, a human health impact assessment must precede and inform the decision whether or not to move forward with fracking.  To skip this step and risk exposing New Yorkers to inherently toxic chemicals without their consent is a violation of basic human rights.”

She pointed out that “a slight-of-hand legal exemption” excludes hydraulic fracturing flowback fluid from the designation “hazardous.”  Yet dozens of the chemical constituents used in fracing fluids are designated as “hazardous.”

She explains (emphasis added):  “By any definition known to toxicology, the wastewater from fracking operations is hazardous.  Hydrofracking fluid sprayed in a forest in West Virginia, for example, defoliated and killed more than half the trees, and elevated the sodium and chloride levels of the soil by 50 fold. When spilled on the ground, fracking waste sows barrenness where nothing will grow.  Those ancient Roman conquerors who salted the fields of their enemies would be impressed.

“Fracking wastewater is also radioactive. According to the DEC’s own findings, flowback waste contains radium-226 at more than 200 times higher than the limit safe for discharge into the environment and more than 3000 times higher than the U.S. EPA drinking water standard.  And yet, the sGEIS does not ensure that this truly hazardous fluid is treated as a truly hazardous substance, nor does it attempt to make it less hazardous.

At the conclusion of the hearing, Senator Grisanti thanked all who participated and said:  “I’m glad that the testimony that was presented here today will be in the record.  It is something that the DEC has to take a look at, has to move forward on it.”

Senator Gallivan said, “Clearly this is an issue of our times; and perhaps the most significant thing that we will face in our time in the Senate.  So it is not something we take lightly.”

He also thanked Senator Grisanti who, he said, “is traveling throughout the state and conducting numerous hearings.”

Citizens, property owners and groups can submit written comments to the DEC by close of business on Wednesday, January 11, 2012. This is important because it is the instrument by which the state says it will regulate this industrial activity.5

 Links & Resources

1 “We are going to do this safely,” stated Department of Environmental Conservation (DEC) Commissioner Joe Martens – Refer to ”NY Promises” on Spectra Energy Watch at this link:  http://www.spectraenergywatch.com/blog/?p=1321

2 New York State Senate:  Public Hearing To Examine Waste Water Produced from Hydraulic Fracturing http://www.nysenate.gov/event/2011/dec/12/examine-waste-water-produced-hydraulic-fracturing

Audio/Video Files of Senate Public Hearing on Hydraulic Fracturing Waste, Canandaigua, December 12, 2011Shaleshock Media has posted audio and video files of the hearing which allow you to listen and/or watch selected speakers at this link:  http://shaleshockmedia.org/2011/12/13/public-hearing-on-hydrofracking-waste/

See also this link: http://blip.tv/rss/bookmarks/247763

3 Sandra Steingraber, Ph.D. New York State Senate testimony – You can download this pdf file of Dr. Steingraber’s testimony  Steingraber NY Senate Testimony 12_12_11.  In addition, Shaleshock Media has posted audio and video files of Dr. Steingraber’s testimony at this link: http://shaleshockmedia.org/2011/12/14/13-sandra-steingraber-canandaigua-fracking-waste-hearing-12-12-11/

4 New York State DEC Deputy Commissioner Eugene Leff (Remediation & Materials Management) Shaleshock Media has posted audio and video files of Commissioner Leff’s testimony at this link: http://shaleshockmedia.org/2011/12/14/2-eugene-leff-dec-deputy-commissioner/

5 Public Comments should be made by January 11, 2012 on the revised Supplemental Generic Environmental Impact Statement (SGEIS).  Following are good sources for information.

In addition, check out this “how to respond” guide to the DEC online.  It offers a user friendly guide for the lay person to understand and respond to the SGEIS document and New York State’s proposed fracing regulations.  You’ll find analyses by many knowledgeable folks including Chip Northrup, energy industry investor, and Lou Allstadt, former Executive VP of Mobil Oil Corporation: http://www.sourcewatch.org/index.php?title=DSGEIS_Responses

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/voices-featured-commentators-and-bloggers/mike-benard-columns/  Accountability Central is part of the Governance & Accountability Institute, Inc.

 

Dec 7

6,000 Attend DEC Public Hearings on Hydraulic Fracturing

in New York;

Public Comment Period Extended 4 Weeks;

Challenge:  Trust an ‘Untrustworthy Industry’?

 

Nadia Steinzor of Earthworks was among nearly 600 who spoke at DEC public hearings in November.

Nearly 6,000 attended eight public hearings in four cities on the subject of high-volume hydraulic fracturing, sponsored by the New York State Department of Environmental Conservation (DEC) in November.
Speaking on the record at these public hearings were nearly 600 individuals who spoke for an allotted 3-minutes each.  Both attendance and speaker numbers are from the DEC.  (See breakdown below in text.)
The DEC called it an “unprecedented turnout” in a press release; and, at the same time, it announced a 4-week extension of the comment and feedback period – from December 12 to January 11.1

Participation at the public hearings – which for many required 3-4 hours or more of travel time – validated DEC Commissioner Joe Martens statement in the press release that, “The turnout of 6,000 people at the hearings demonstrates how strongly New Yorkers feel about this important issue.”

The odd note was that the four-week extension of the public comment period came as a single sentence at the end of the press release.

As New York Democrat Governor Andrew Cuomo appears ready to open the door to shale gas extraction, the next significant event and activity is to submit written comments to the DEC by close of business on Wednesday, January 11, 2012. This is important because it is the instrument by which the state says it will regulate this industrial activity.

For more information, including guidance on how to do this online, see the second footnote below under Links & Resources.2

 

Public attendance at the DEC hearings was as follows, according to the DEC:

Dansville (2 meetings, Nov. 16):               1550 attendees                150 speakers

Binghamton (2 meetings, Nov. 17):         1905 attendees                154 speakers

Sheldrake (2 meetings, Nov. 29):              600  attendees               144 speakers

NYC (2 meetings, Nov. 30):                        1900  attendees              126 speakers

TOTAL                                                              5,955                                 574

One of the many speakers at these public hearings was Nadia Steinzor, Marcellus Regional Organizer for Earthworks’ Oil & Gas Accountability Project.  In her allotted 3 minutes, Steinzor thanked the DEC for the opportunity to speak; and acknowledged the difficulty of addressing “modern-day, industrial gas development of the type and on the scale that the state has never seen before.”

She cited gaps, however, in the state’s draft documents – calling them “critical flaws” – “such as no consideration of economic costs, no plans for hazardous waste disposal, sidelining of local zoning rights, no consideration of cumulative impacts, the use of waste pits, and paltry setbacks.”

Steinzor noted:  “One of the biggest holes in the SGEIS is a complete failure to analyze health impacts.  The DEC has ignored direction from the EPA, requests from hundreds of health professionals, and growing evidence nationwide of the health problems experienced by communities exposed to oil and gas development – bloody noses, respiratory distress, skin rashes, dead livestock and pets, cancer clusters, and more.” 

She concluded:  “Unfortunately, if the many critical flaws in the SGEIS and draft regulations are not fixed, New York will actually be just like every other oil and gas state: trusting an untrustworthy industry that’s rarely held accountable for damage or required to prevent it. …”

A pdf file copy of Steinzor’s complete comments can be downloaded under the third footnote below.3  Meanwhile, citizens, property owners and groups should provide input to the DEC no later than January 11.2

Links & Resources

1 ‘Unprecedented Turnout at DEC Hearings on High-Volume Hydraulic Fracturing’ – DEC press release (December 1, 2011):  http://www.dec.ny.gov/press/78799.html

2 Public Comments should be made by January 11, 2012 on the revised Supplemental Generic Environmental Impact Statement (SGEIS).  Following are good sources for information.

New York State Department of Environmental Conservation:  Revised Draft SGEIS (September 2011)http://www.dec.ny.gov/energy/75370.html

New York State High-Volume Hydraulic Fracturing Comments – http://www.dec.ny.gov/energy/76838.html

In addition, check out this “how to respond” guide to the DEC online.  It offers a user friendly guide for the lay person to understand and respond to the SGEIS document and New York State’s proposed fracing regulations.  You’ll find analyses by many knowledgeable folks including Chip Northrup, energy industry investor, and Lou Allstadt, former Executive VP of Mobil Oil Corporation: http://www.sourcewatch.org/index.php?title=DSGEIS_Responses

3 Testimony of Nadia Steinzor of Earthworks Oil & Gas Accountability Project before New York State Department of Environmental Conservation –   NY DEC Testimony NSteinzor

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/voices-featured-commentators-and-bloggers/mike-benard-columns/  Accountability Central is part of the Governance & Accountability Institute, Inc.

Oct 26
Shale Gas PR Confab
icon1 admin | icon2 Recent Posts | icon4 10 26th, 2011| icon31 Comment »

Industry Losing Message War on Shale Gas – Meet in Houston Stat!

PR Strategy:  “Minimize & Spin”

Advice:  That’s the Problem Not the Solution;

More of Same Behavior Won’t Build Public Credibility

It is an open secret:  The shale gas industry is in deep tapioca.  It is losing support in the important court of public opinion. Not just in the USA, but elsewhere as well.

France banned fracing; and challenges are rising across the world.  The loss of public support  is acknowledged in conversations with legislators and gas industry executives.  Nowadays, the shale gas industry is compared to the tobacco industry, the asbestos industry and the nuclear industry.

That might be a trifecta record for a single industry brand.

Industry execs speak about it publicly.  Tisha Conoly-Schuller of the Colorado Oil & Gas Association repeatedly says, “The public does not believe us …. The favorable perception of the oil and gas industry polls at seven percent.”
Reference link:  http://www.naturalgaswatch.org/?p=939

She raises the issue of whether the industry needs a new message and/or a new messenger.

As if in response, PR managers from the shale gas industry are gathering in Houston on October 31-November 1.  In addition to Conoly-Schuller, the PR folks will come from leading energy companies such as Chesapeake Energy, Anadarko Petroleum, Range Resources, EQT, Cabot Oil & Gas, Norse Energy, and Williams.

Conference & Definition of Insanity

If the conference program is an indicator, change will be a heavy lift for this industry.1

Recall the adage about the definition of insanity – doing the same thing over again and expecting different results.  Throughout the program we get the energy industry’s apparent wisdom like this description from Linda Rozett of the American Petroleum Institute (API) on Day 2 (emphasis added):  “Evaluating how new media can be used to get ahead of a story and develop immediate proactive responses to minimize and spin negative press.”

Or this from George Stark of Cabot Oil and Gas (emphasis added):  “… prepare spokespeople in putting out the most positive spin on an event [i.e., crisis] whilst maintaining consistency and accuracy.”  Meanwhilst (couldn’t resist), how about actually practicing the “transparency, accountability and integrity” standards touted on so many energy company websites?

What If Industry Delivered on ‘Transparency, Accountability’?

What if the shale gas industry did something really asymmetrical – what if it did what it says it does?  Nobody would expect that, would they?

Here is how it could work.  Most, if not all, of the companies listed in the program are members of the Marcellus Shale Coalition.  This industry group includes 40 U.S. and foreign gas and oil companies, and is headquartered outside of Pittsburgh.

Shale Gas’ 7 Guiding Principles

In October of last year, the industry coalition introduced its 7 Guiding Principles to much fanfare, including a media tour with Tom Ridge, former governor of Pennsylvania and former head of Homeland Security.  The second Guiding Principle says:  “We implement state-of-the-art environmental protection across our operations.”  Reference link:  http://marcelluscoalition.org/about/guiding-principles/

At the risk of sounding like a high school English teacher, we would suggest to Kathryn Klaber, president of the Marcellus Shale Coalition:

  • “We implement” is present tense – it does not say ‘we hope to implement’;
  • “State-of-the-art environmental protection” doesn’t leave much room for debate about whether it is the best available practice/technology;
  • “Across our operations” means everywhere – it doesn’t say ‘across some of our operations.’

Initially, I was impressed with the second Guiding Principle, until I asked the coalition what it means they actually do at drill sites.  My specific question is:  Does it mean the shale gas industry implements the following at all drill sites:

  1. Use a closed-loop system to eliminate plastic-lined holding pits, trenches or ponds for liquid drilling waste?
  2. Install vapor-recovery units on condensate tanks to reduce or eliminate emissions of volatile organic compounds?
  3. Use zero-emission glycol dehydration units?
  4. Use pneumatic no-bleed valves to prevent fugitive emissions (which can’t be seen with the naked eye, but which can be seen with an infrared camera)?
  5. Recycle flowback frac water to reduce the amount of freshwater used in hydraulic fracturing?

I tried for 3-4 months to get a response to this question via phone and e-mail.   My repeated inquiries were ignored.  What message does that send about an industry that claims, as Matt Pitzarella of Range Resources does in his Day One spiel about “understanding the need for being less withholding and more transparent….”

Given the industry’s nonresponse to its own guiding principles, this former gas leaseholder (who went on to fight eminent domain launched by Spectra Energy and backed by the Federal Energy Regulatory Commission) responded with an op-ed piece published in the Pittsburgh Post-Gazette (since the coalition is headquartered nearby).

It challenges whether the industry’s guiding principles are really guiding platitudes.  Reference link: http://www.post-gazette.com/pg/11041/1124307-109.stm

Protecting Status Quo = Losing Strategy

It is not in the industry’s self interest to behave the way it does. And the industry’s behavior is certainly not in the public interest.   That’s why the industry will struggle in Houston “To Overcome Public Concern Over Hydraulic Fracturing” (as it says in the program).

Instead of trying to salvage the status quo, what if the leading communicators for the industry could include the following among their “deliverables” at the conference:

  1. Write a clear and direct response to the question about what the Marcellus Shale Coalition’s second guiding principle means these companies do at every drill site – and avoid “positive spin.”  (How many communicators contributed to the writing of the guiding principles without a thought to the possibility that they might draw a ‘grown up’ question?  FD Communications does much of the PR/public affairs for the industry coalition.  Is there a PR turf ownership here – don’t tell us, we’re the smartest guys in the room?)
  2. Write a clear and direct response for Range Resources to explain how in the world the “king of the Marcellus” (as it has been called) allegedly failed to read its own production volumes; and sent letters to its gas leaseholders in Western Pennsylvania claiming that royalties were overpaid for “several production periods.”  As a consequence, it would deduct the alleged overpayment from future royalty checks.  So in one fell swoop, the ‘White Hat’ guys at Range Resources (as they like to style themselves) admit they cannot do arithmetic, and fail to accurately manage leaseholder and company finances in a task that is fundamental to the industry.  Why should leaseholders, legislators and the public have confidence in performance like this?  Reference link (including copy of letter to leaseholders):  ‘White Hat’ Gas Guyshttp://www.spectraenergywatch.com/blog/?p=742
  3. Write a clear and direct response explaining why Houston-based Spectra Energy failed to keep repeated promises to furnish gas chromatography test results to stakeholders James and Karla Levy.  The Levy’s live near Spectra Energy’s huge compressor and underground natural gas storage facility (with 13 injection/withdrawal wells) called Steckman Ridge in Bedford County, PA.  The Levy’s water well cover blew off four times due to natural gas pressure, including methane.  There have been performance problems at the heavy industrial facility since it began operations in 2009.  In this incident, Spectra Energy conducted a gas chromatography test and is said to have determined that the natural gas was not from the Steckman Ridge storage reservoir.  Despite that, the company installed a methane vent or separator on the Levy’s property.  Why not share the promised test results to demonstrate integrity, transparency and accountability?  Unless the actual test results raise questions.  Reference link:  Citizen Regulators 4http://www.spectraenergywatch.com/blog/?p=1362

Status Quo is Problem, Not Solution

More status quo isn’t going to help the shale gas industry’s credibility problem.  This industry is in deep tapioca for one reason – what it has done  to itself by its own performance.  It is not a good neighbor (e.g., does not deliver data/test results it promises property owners).  It does not do what it says it does (can’t explain its own guiding principles).  It is not trustworthy and it is not even competent (e.g., can’t read its own production volumes).  This isn’t about “minimize and spin,” bob and weave, and new media.  That’s the status quo.

Recall the sage advice of Andy Grove, legendary corporate leader and co-founder of Intel:  Success contains the seeds of its own destruction.  We are witnessing the early tipping point of the shale gas industry.  It has sown the seeds of its own downfall through its performance – and it still doesn’t get it.

Spin, bob, weave is not the solution.  It’s the problem.  Get it? 

Links & Resources

1 Media & Stakeholder Relations Hydraulic Fracturing Initiative 2011 – Website link:  http://www.media-stakeholder-relations-hydraulic-fracturing.com/   Downloadable pdf file of the program:   sgmr_brochure_6689

 

NOTE:  This article is cross-posted on the Accountability Central website:  http://www.accountability-central.com/voices-featured-commentators-and-bloggers/mike-benard-columns/   Accountability Central is part of the Governance & Accountability Institute, Inc.

Oct 5

Challenge:  Track Record vs. Promises

New York State Has 4,000 Abandoned/Unreported Wells;

35,000 Wells for Which DEC Has No Records

 DEC Deputy Commissioner: “We do not currently have sufficient staff to monitor this program.”

As New York Governor Andrew Cuomo prepares to open the door to shale gas extraction, one remembers that the slogan for the New York Lottery is:  “Hey, You Never Know.”®

This takes on new meaning as, by any definition, this is a heavy industrial activity that will have wide ranging impacts on citizens and communities.  Those impacts include:

  • Where will drilling and ‘frac’ water waste end up?  (And what does “treatment” mean since toxic frac water cannot be made drinkable again.)
  • How do we prevent gas migration (thermogenic) which can contaminate water wells & aquifers (in addition to drilling waste and toxic frac water)?
  • How do we protect community infrastructure such as roads with all of the required heavy truck traffic moving in and out of shale drilling areas?
  • From where comes the 2-9 million gallons of water required to ‘frac’ every well?
  • How do we protect private property rights since the plan is to focus this heavy industrial activity on private land – and New York State has a compulsory integration law on the books (a variation of eminent domain)?

Now is the time to understand how the state proposes to regulate this activity on private land.  Based on that, citizens are encouraged to submit constructive comments to the Department of Environmental Conservation (DEC) regarding its revised Supplemental Generic Environmental Impact Statement (SGEIS).

This is important because it is the instrument by which the state is saying it will regulate this industrial activity.

Meanwhile, a Deputy Commissioner of the DEC acknowledges at a public meeting in Corning, NY, that:  “We do not currently have sufficient staff to monitor this program.”  And two Congressional Representatives – from New York and Pennsylvania – have formed the bipartisan House Marcellus Shale Caucus.  So there is no lack of interest in shale gas extraction issues.

In Part One we shared highlights of recommendations made by an energy industry veteran in a 23-page letter to DEC Commissioner Joe Martens.  Refer to this link: http://www.spectraenergywatch.com/blog/?p=1440

The author of the letter is James “Chip” Northrup, who spent more than 30 years in the energy business, starting at ARCO then becoming an owner, operator, and investor in offshore and onshore drilling rigs, plus oil and gas projects in Texas and New Mexico.  He received an MBA from the University of Pennsylvania Wharton School of Business; and he splits his residence between New York State and Texas.

In this Part Two of the post, we will share additional highlights from Northrup’s letter, a copy of which is attached below under Links & Resources.1

 Northrup:  DEC Not Funded to Enforce Regulations

Northrop connects two vital issues – DEC funding (and its ability to regulate) and a severance or gas production tax.  First, he notes that DEC is “starved of funding – at a critical time (p. 5 of his letter).”

Northrup’s concern is not isolated.  This writer has listened to many citizens as well as public officials at the state and county level express concern that the DEC does not have the funding and staffing to enforce regulations.

In fact, on Sept. 17, in Corning, New York, DEC Deputy Commissioner Eugene Leff (Remediation & Materials Management), said, “We do not currently have sufficient staff to monitor this program.” 

Leff was among several speakers at a public meeting sponsored by U.S. Congressman Tom Reed, who represents the 29th district in NY.  Reed is co-chairman of the recently formed House Marcellus Shale Caucus.

Co-founded by Representatives Tom Reed (R-NY) and Mark Critz (D-PA), the bipartisan caucus has members from New York, Ohio, Pennsylvania and West Virginia.2

In his letter to DEC, Northrup explains (emphasis added):  “While we appreciate that the DEC will use its best efforts to maintain a high standard of oversight, the reality is that the DEC is not adequately staffed and funded for this task as your predecessor made clear before his departure.”

Northrup is referring to Alexander ‘Pete’ Grannis, who was DEC Commissioner from April 2007 to October 2010.  Grannis was fired by Governor David Paterson after the press obtained a memo Grannis wrote about how budget cuts would impair environmental protection in New York.  Reference:  http://www.nytimes.com/2010/10/22/nyregion/22fired.html?emc=eta1

“Nothing proposed has changed that situation; only the rhetoric is different,” Northrop continues.  “The DEC staff we have dealt with have been competent and dedicated individuals.  But the Department is starved of funding – at a critical time.”

“It cannot take care of the legacy problems it currently has, much less take on new ones.  This is evidenced by the fact that the DEC does not have the funds to properly plug and abandon the thousands of orphaned wells that lie rusting away in the state.”

 DEC:  4,000 Abandoned/Unreported Wells

“There are approximately 4,000 abandoned or unreported wells on DEC’s priority plugging list,” according to Emily DeSantis, Assistant Director of Public Information for DEC.  “There are approximately 35,000 wells for which DEC has no records.” 

As DeSantis told this writer, “the proposed dSGEIS requires drilling companies to survey the land generally within one mile of a proposed well location.  If an unplugged deep well is found, DEC would require the operator to properly plug and abandon it before any high-volume fracturing begins.”

The challenge, as we have noted before, is that track records always trump promises.  If New York State cannot clean up old drilling messes, how will it clean up new drilling messes?

Northrup concludes:  “Absent a clear source of funding, the DEC should refrain from issuing permits for HVHF [High Volume Hydraulically Fractured] wells.  The DEC cannot afford to issue permits on wells that it cannot adequately regulate.”

 Northrup:  Tax Production at Wellhead

Northrup’s recommendation is to levy a tax on gas production at the wellhead, also known as a severance tax.  Without it, “the state will not be able to adequately monitor production – nor will it even routinely inspect the wells (p. 6 of letter).”

Gas companies currently lobby against the severance tax in Pennsylvania and New York.  Energy industry veteran Northrup calls this “disingenuous” and says just look at the tax policy in the industry’s home states.  “The question should be not whether there should be a production tax, but what the rate should be.”

And he has a recommendation:  “The rate imposed in the company’s home state would be the starting point.”

“If the lobbyist represented Chesapeake, headquartered in Oklahoma, that answer should be 7%.  If the lobbyist represented Range Resources, Cabot or XTO, headquartered in Texas – the answer should be 7.4% (pp. 6-7 of letter).”

 Northrup:  Unequal Treatment of Water Sources

Northrup writes that, “The proposed ban of drilling within the New York City watersheds creates a double standard that is without scientific merit (p. 11 of letter).”

“The notion that the simple filtration systems of muncipal water plants offers the residents any protection from the wastes found in fracking fluids and flowback is transparently a politically expedient excuse.”

He says (emphasis added), “The amount of protections proposed are directly proportionate to the populations affected.  The more people affected, the greater the protections.  The New York City reservoirs will be protected ostensibly because they have no sedimentation filters while rural water wells will be unprotected, even though they have no sedimentation filters.”

“This clear inequity is confirmed by the addition in Section 3.2.5 of this latest draft of a temporary ban for ‘Primary Aquifers’ – whose only distinguishing characteristic from ‘Principle Aquifers’ is the greater populations served.”

“Next on the hierarchy of protection are lakes that serve municipalities (2,000’), followed by private wells (500’) and last, streams (150’).  The correlation of gas well setback from drinking water to populations served is inequitable and without scientific merit.

Northrup concludes:  “All watersheds should be given the protections afforded New York City, or horizontally hydrofracked wells should not be allowed in any watershed.”

 Setbacks from Drilling – Surface vs. Subsurface

The set back issue raises a question regarding how well the public understands the difference between surface set backs and subsurface set backs.  For example, DEC Deputy Commissioner Leff, at the same public meeting in Corning, NY, said the set back from Primary Aquifers for well pads is 500 feet.

That is the surface setback.  Underground, it is a different story.  Speaking with Deputy Commissioner Leff after the meeting, he said that New York State’s regulatory guidance would permit a driller to run a long lateral drill (horizontal, high-volume hydraulic fracturing) under the Primary Acquifer – as long as, on the surface, the well pad is 500 feet from the aquifer.

To ensure I understood him correctly, I repeated his response and he affirmed it.  The DEC believes such subsurface drilling under a Primary Acquifer would be safe, according to Mr. Leff.

Written comments will be accepted through the close of business December 12, 2011.  For more information, see the third footnote below under Links & Resources.3

While Northrup has not received a response from Commissioner Martens or the DEC to date, Emily DeSantis, Assistant Director of Public Information for DEC,  told us, “Mr. Northrup’s letter is currently under careful review.” 

Links & Resources

1 Energy Industry Veteran James Northrup’s letter to DEC Commissioner Joe Martens – This 23-page letter is detailed, thoughtful and based on experience in the energy industry.  Many benchmark references to similar issues in Pennsylvania, Colorado, Texas and elsewhere.  Pdf file:  Chip-Northrup-Comments-on-Draft-SGEIS(2011)

2 Congressional Marcellus Shale Caucus – Co-founded early in 2011 by Representatives Tom Reed (R-NY) and Mark Critz (D-PA).  It held its first meeting on April 1, 2011.  The bipartisan caucus has members from New York, Ohio, Pennsylvania and West Virginia.  See Reed’s op-ed piece in The Washington Examiner: http://washingtonexaminer.com/opinion/op-eds/2011/04/new-york-and-america-can-profit-fracking-marcellus-shale

3 Public Comments should be made by December 12, 2011 on the revised Supplemental Generic Environmental Impact Statement (SGEIS).  Following are good sources for information.

New York State Department of Environmental Conservation:  Revised Draft SGEIS (September 2011)http://www.dec.ny.gov/energy/75370.html

In addition, check out this helpful guide in the form of a volunteer Wiki website, hosted by the Center for Media and Democracy.  It offers a detailed but user friendly guide for the lay person to understand, analyze and respond to the SGEIS document.  You’ll find analyses by many knowledgeable folks including Chip Northrup, energy industry investor, and Lou Allstadt, former Executive VP of Mobil Oil Corporation: http://www.sourcewatch.org/index.php?title=2011_SGEIS_Flaws%28NY%29

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-ny-shale-gas-lottery-hey-you-never-knowR-part-2/ Accountability Central is part of the Governance & Accountability Institute, Inc.

 

Sep 28

New York Shale Gas Lottery:  ‘Hey, You Never Know’®

Pennsylvania: New Data Show Persistent Problems with Faulty Cement in Shale Wells;

New York:  Energy Industry Veteran Identifies Needed Improvements for State’s Proposal for Shale Gas Extraction

DEC Responds

The latest news from Pennsylvania underscores the challenges New York State residents will face as Governor Cuomo prepares to open the door to shale gas extraction.

Violations data released by the Pennsylvania Department of Environmental Protection “show problems persist with the cemented strings of steel casing meant to protect groundwater from gas and fluids in Marcellus wells,” according to a news report in The (Scranton) Times-Tribune.1

“During the first eight months of 2011, 65 Marcellus wells were cited for faulty casing and cementing practices – one more than was recorded in all of 2010,” according to the news report.

“The steady pace of new violations – an average of eight new wells a month have been cited for casing, cement or leaking gas violations this year – also indicates the complexity of the problem in a state where the geology is neither uniform nor predictable,” reported The (Scranton) Times-Tribune.

Coincidentally in New York, Governor Andrew Cuomo’s Department of Environmental Conservation is seeking public comment on the State’s revised Supplemental Generic Environmental Impact Statement (SGEIS).

This is the instrument by which the state’s political leadership appears ready to open the door to shale gas extraction with the firm promise to the world that, We are going to do this safely.”2

Written comments will be accepted through the close of business December 12, 2011.  For more information, see the third footnote below under Links & Resources.3

Questions New York residents must ask include:  Does the state have specific plans for disposing of the toxic frac water and drilling waste that will be created by hydraulic fracturing industrial operations?

Citizens’ Resource

An excellent resource for those working to understand risks versus benefits of New York State’s current proposal for shale gas extraction is James “Chip” Northrup’s 23-page letter to DEC Commissioner Joe Martens, dated July 25.  It offers constructive, detailed comments that demonstrate a thorough understanding of the issues.

Northrup spent more than 30 years in the energy business, starting at ARCO then becoming an owner, operator, and investor in offshore and onshore drilling rigs, plus oil and gas projects in Texas and New Mexico.  He received an MBA from the University of Pennsylvania Wharton School of Business; and he splits his residence between New York State and Texas.

Among the key challenges identified by Northrup:

  • State agencies are unprepared for horizontal hydrofracking.
  • New York State’s SGEIS is a de facto industrial land-use plan.

Following are excerpts from Northrup’s July 25th letter to Commissioner Martens on these points.  A pdf file copy of his letter is attached below under Links & Resources.4

Northrup:  NY is Unprepared 

“Most state agencies and local governments are not prepared to deal with the challenges of horizontal hydrofracking of shale,” Northrup writes (pp. 1-2 of letter).  His letter cites examples such as the NY Department of Transportation (NYSDOT); Office of Real Property Tax Services (ORPTS); Department of Health and the Attorney General’s office.

He elaborates (emphasis added):  “The lack of facilities to dispose of fracking wastes is emblematic of the State’s lack of preparedness for this activity.  The DEC attempts to mask this lack of preparedness but does not require key shortcomings to be solved prior the issuance of permits.  Proceeding without adequate preparation simply repeats the mistakes made in Pennsylvania.The SGEIS lists various ideas of how to address frack waste disposal – but offers no conclusive solutions.”

“The proposed regulations mention re-use, but re-use is not disposal; it simply increases the net toxicity with each re-use.  The proposal mentions treatment, but filtration will not remove all the toxic chemicals in solution, and thermal distillation is not economical.  Applicants should be required to prove that the flowback material or treated sludge are lawfully disposed of.”

Northrup adds, “Tracking of waste is not sufficient.  Tracking is not final disposition.”  He concludes (emphasis in original):

“Until an applicant can prove how they intend to dispose of the flow back (or the sludge removed from processing flowback), the DEC should not issue a drilling permit.  Until other agencies, including ORPTS and NYSDOT are prepared to deal with the impacts of horizontal fracking, no permits should be issued.”

DEC Responds

This writer contacted DEC to ask whether it had specific requirements for disposing of fracking wastes that go beyond tracking, recycling (re-use) or a treatment that amounts to dilution?

Emily DeSantis, Assistant Director of Public Information for DEC, replied (emphasis added):

“…each applicant must submit a plan for disposal of all wastes created in all phases of the drilling process. In some cases, a back-up plan must also be included. If an acceptable disposal plan is not submitted, the drilling permit will not be issued.

DeSantis acknowledges (emphasis added):  “Currently there are no facilities in New York State capable of accepting high-volume hydraulic fracturing wastewater.  Modifications would need to be made to the facilities and the facility would need approval from DEC.”

“To get an approval,” DeSantis says, “the facility would need to demonstrate through a full headworks analysis, with a sampling of the wastewater, that it has the capability to treat the wastewater within its SPDES [State Pollutant Discharge Elimination System] permit conditions.”5

“In addition,” she continues, “the drilling company would need to develop a contingency plan if the primary disposal for wastewater is a publicly owned treatment works facility. The SGEIS specifically discusses this on p. 7-63 and in Appendix 22.”

She referred parties interested in more information on the state’s proposed requirements for waste to this DEC fact sheet: http://www.dec.ny.gov/docs/materials_minerals_pdf/sgeisgenfs092011.pdf.

Northrup:  SGEIS is industrial land-use plan for Upstate

According to Northrup, “The DEC proposes to allow the industrialization of 85% of Upstate [New York] with the SGEIS as the only guide for any area where local zoning does not control (p. 17 of letter).”

Yet he notes that, “the DEC focus on individual wells does not consider the cumulative impact of multiple wells over an extended time period (p. 18 of letter).”

Northrup points out that the DEC requires a one-mile setback between a new well and an abandoned oil or gas well (p. 18 of letter).

He writes (emphasis in original):  “It is ironic to note that the one-mile setback proposed from an abandoned oil well is the farthest setback distance listed in the SGEIS – twice as far as proposed for a municipal drinking water lake, and farther than from a hospital, apartment building, organic farm or school – because none of those uses are identified in the SGEIS – which is effectively blind to local land use.  Abandoned gas wells are apparently more ‘sacrosanct’ to the Cuomo Administration than drinking water.”

He notes, however (emphasis added):  “There is some rationale for not fracking a well next to an orphaned well – if the frack hits the old well bore, it could easily force fluids up the well bore into the groundwater.  However the DEC goes out of its way to discount the probability of a frack doing the same thing to a naturally occurring vertical fault – which are afforded no consideration under the SGEIS (p. 18).”

Northrup concludes his letter this way (emphasis added):

“Commissioner Martens, I appreciate your efforts.  I would encourage your Department to proceed cautiously on these matters and to involve the Comptroller, DOH, NYSDOT and the Attorney General’s office in a collaborative process before the DEC considers issuing any permits for horizontal hydrofracking of shale gas wells.”

To date, Northrup has not received a response from Commissioner Martens or the DEC; but DeSantis of the DEC told us, “Mr. Northrup’s letter is currently under careful review.”

In Part 2, we’ll highlight additional recommendations for New York State’s approach to shale gas extraction from energy industry veteran James Northrup.

Links & Resources

1 DEP inspections show more shale well cement problemsThe (Scranton) Times-Tribune, September 18, 2011, by Laura Legere — http://thetimes-tribune.com/news/dep-inspections-show-more-shale-well-cement-problems-1.1205108#axzz1Ya2yPZSL

Inspections, Violations, Enforcements Data from PA Department of Environmental Protection – Said to be updated roughly on a monthly basis; opens up into spreadsheets; note that when the website page opens, the top half may appear blank.  Scroll down until you see the links: http://www.dep.state.pa.us/dep/deputate/minres/oilgas/OGInspectionsViolations/OGInspviol.htm

2 Webcast of DEC Commissioner Joe Martens press conference, July 1, 2011 http://at.pscdn.net/008/00198/11/dec/0701/#

3 Public Comments should be made by December 12, 2011 on the revised Supplemental Generic Environmental Impact Statement (SGEIS).

New York State Department of Environmental Conservation:  Revised Draft SGEIS (September 2011)http://www.dec.ny.gov/energy/75370.html

In addition, check out this helpful guide in the form of a volunteer Wiki website, hosted by the Center for Media and Democracy.  It offers a detailed but user friendly guide for the lay person to understand, analyze and respond to the SGEIS document.  You’ll find analyses by knowledgeable folks including Chip Northrup, energy industry investor, and Lou Allstadt, former Executive VP of Mobil Oil Corporation: http://www.sourcewatch.org/index.php?title=2011_SGEIS_Flaws%28NY%29

Among other issues, the website offers comments on “mitigation” measures including the use of a new third cement casing: http://www.sourcewatch.org/index.php?title=2011_SGEIS_Flaws%28NY%29#Chapter_7_-_Mitigation_Measures

4 Energy Industry Veteran James Northrup’s letter to DEC Commissioner Joe Martens – This 23-page letter is detailed, thoughtful and based on experience in the energy industry.  Many benchmark references to similar issues in Pennsylvania, Colorado, Texas and elsewhere.  Pdf file:  Chip-Northrup-Comments-on-Draft-SGEIS(2011)

5 SPDES:  State Pollutant Discharge Elimination System – To understand what this involves, see the link: http://www.dec.ny.gov/permits/6054.html

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-updates-from-pennsylvania-and-new-york-new-data-show-persistent-problems-wi-2/  Accountability Central is part of the Governance & Accountability Institute, Inc.

 

Sep 21
Crack Cement 2
icon1 admin | icon2 Recent Posts | icon4 09 21st, 2011| icon32 Comments »

Does Cement Crack? – Part 2

Industry Veterans Comment on ‘Proper Cementing’

Is it a Panecea to Safe Shale Gas Extraction?

New York State government appears ready to open the door to shale gas extraction.  In July, Governor Cuomo’s Commissioner of the Department of Environmental Conservation (DEC), Joe Martens, said the key to safe extraction of natural gas was proper cementing and a third layer of casing or steel pipe down the well bore.

He promised the world:  “We are going to do this safely.”

This is what he said (emphasis added):

“Gas migration is the problem. … Poor cementing jobs were implicated in a lot of those cases [in Pennsylvania] where people ended up with gas in their [water] wells.  We think that with proper cementing and this additional layer of casing, that problem will be essentially solved.”1 

“High volume drilling will be permitted on private lands but only under new rigorous and effective measures that mitigate the environmental impacts.  We are going to do this safely.”1

 Meanwhile, industry leader Schlumberger warns (emphasis added):

“Despite recent advances in the cementing of oil and gas wells, many of today’s wells are at risk. … The environmental impact of contaminating a single fresh water aquifer is extremely serious.”2

Other experts caution that cementing an oil or gas well is “an inherently uncertain process.”3

Gas Exec on Ineffective Well Design & Cementing

The Executive VP of North American Operations for Talisman Energy, Paul Smith, recently addressed the first “Shale Gas Insight” conference of the Marcellus Shale Coalition, an industry group of 40 U.S. and foreign gas and oil companies.

Among other points, he said (emphasis added), “However, industry must recognize that reported cases of gas migration into water tables can occur as the result of ineffective well design and cementing practices.”4

The key question is whether New York State has identified the panecea to safe extraction of shale gas — between the third layer of casing and proper cementing.

New York State’s plan for proper cementing and an additional layer of casing (steel pipe) can be found on pages 7-49 to 7-55 in chapter 7 (“Mitigation Measures”) of its Revised Draft SGEIS (September 2011) at this link: http://www.dec.ny.gov/docs/materials_minerals_pdf/rdsgeisch70911.pdf

James “Chip” Northrup spent more than 30 years in the energy business, starting at ARCO then becoming an owner, operator, and investor in offshore and onshore drilling rigs, plus oil and gas projects in Texas and New Mexico.

‘No Statistical Evidence’ That 3rd Casing Works

When asked for his assessment, including whether this third casing is unique in any way and might contribute to safer gas extraction, he replied:

“A third string (between the surface casing and production casing) is not new, nor will it ‘solve’ gas migration into an aquifer.  Simply put, a third string is not a panacea.  There is no statistical evidence that it works at all.

“Even if leaks from the production casing are contained/retarded, gas can channel up on the outside of the outermost casings.  So you could have 5 casings (some Pennsylvania wells already do), and still get gas migration up into groundwater

“Pressure gradients are funny that way.  So are dissimilar rates of expansion/contraction between steel tubing and concrete.  And imperfect bonds between concrete casings and the surrounding rocks.  All these imperfections enable gas to channel into groundwater.”

Money

Dale Henry is a petroleum engineer with 50 years experience in the oil and gas industry around the world.  He ran three times as a reform candidate for the Railroad Commission of Texas, the agency charged with regulating the energy industry in that state.

In response to this writer’s inquiry, Henry said that the third casing or pipe is not unique in the industry.  In fact, the “depth of the well may require more than one intermediate casing string.”

He cautiously applauded the fact that:  “Some folks with responsibility (I hope) have stepped forward to address the real problem.  Stop the possibility of gas migration before it can start.”

According to Henry, “Safe extraction of shale gas can be easily achieved (with money) by doing two steps:

  • Eliminate ‘poor cementing jobs,’ and
  • Require one or more extra strings of casing (depends on the well depth).”

Note that he said “eliminate” poor cementing jobs, not reduce or mitigate.

‘Maybe Truth Costs Too Much’

Henry also added a third element – money.  “It all deals with money,” Henry notes.  “Maybe the truth costs too much.  Producers are in the business to make money, not spend money if they don’t have to.”

Jerry Lobdill is a retired physicist and chemical engineer in Fort Worth, Texas, who has studied the technology of horizontal gas drilling.  He knows Dale Henry and has had long conversations with him on drilling issues.

He expanded on the money issue.  “Drilling rigs are expensive.  The cost-per-minute to have one on the drilling site is so huge that it dominates decision making during drilling and completion.”

Proper mixing, pumping and curing cement is time consuming, during which the drilling rig is idled.  According to Lobdill, “Wells are drilled and cemented improperly everyday, everywhere,” because of pressure not to delay drilling.

New York State’s DEC has a two-page fact sheet on “What We Learned From Pennsylvania.”  As the second paragraph notes:5

“DEC did not restrict its review to that one incident [LeRoy Township in Bradford County, PA].  DEC staff studied incidents throughout Pennsylvania where problems occurred to assess their causes and identify solutions.”

First of all, DEC is to be saluted for going on site in Pennsylvania to do primary research on causes and possible solutions.  This is necessary but not sufficient given the fact that the energy industry intends to export to northeastern states its behavior and practices from shale gas regions like the Barnett in Texas.

Anecdotes vs. Quantitative Research

It is important for states like New York to move immediately from qualitative research to quantitative research on environmental success/failure rates of drilling practices, including “proper cementing.”

A spokesperson for Pennsylvania’s Department of Environmental Protection (DEP) confirmed that the regulator’s “Oil and Gas East Region does not have statistics or a database regarding the failure rate of cement jobs in drilling operations.  The Oil and Gas East Region is not aware of any source for such information.”

I contacted the American Petroleum Institute to inquire whether it had such a data base or knew of one.  To date I’ve had no response to e-mail and phone inquiries.

New York State doesn’t appear to have such a quantitative data base – yet government officials are telling citizens, “We are going to do this safely.”1

Forget promises.  Look at track records.  Where are the stats on the success/failure rate of drilling practices such as proper cementing.  As the industry, itself, tells us:

“Despite recent advances in the cementing of oil and gas wells, many of today’s wells are at risk. … The environmental impact of contaminating a single fresh water aquifer is extremely serious.”2

Meanwhile, the clock is ticking for public comments on New York State’s revised Supplemental Generic Environmental Impact Statement (dSGEIS).  Written comments will be accepted through the close of business December 12, 2011.  The DEC’s preferred method of receiving comments is via its web-based comment form.  For more information, see footnote #6 below under Links & Resources.6

 Links & Resources

1 Webcast of DEC Commissioner Joe Martens press conference, July 1, 2011 http://at.pscdn.net/008/00198/11/dec/0701/#

2 Schlumberger book (from the introduction) – Well Cementing, Second Edition, 2006 by Eric B. Nelson (and others).

3 National Commission on BP Deepwater Horizon Oil Spill And Offshore Drilling – official website where you can download the final report and other documents: http://www.oilspillcommission.gov/

The Inherently Uncertain Cementing Process – Chapter Four, p. 99.  See also pp. 99-103 which goes into detail about “The Cementing Design:  Critical Decision For A Fragile Formation” and much more.

4 Responsible Shale Gas Development – Speech delivered by Paul Smith, EVP of North American Operations, Talisman Energy Inc. to Marcellus Shale Coalition’s 2011 Shale Gas Insight Conference, Philadelphia, PA, September 8, 2011 (p. 3)

http://www.thepressreleasewire.com/client/talisman_energy/release.jsp?actionFor=1497098&year=2011&releaseSeq=0

5 NYS Department of Environmental Conservation – What We Learned From Pennsylvania – the following link also offers a downloadable pdf file of the document.  http://www.dec.ny.gov/energy/75410.html

6 Public Comments should be made by December 12, 2011 on the revised Supplemental Generic Environmental Impact Statement (dSGEIS).  Following are good sources for information.

New York State Department of Environmental Conservation:  Revised Draft SGEIS (September 2011)http://www.dec.ny.gov/energy/75370.html

In addition, check out this helpful guide in the form of a volunteer Wiki website, hosted by the Center for Media and Democracy.  It offers a detailed but user friendly guide for the lay person to understand, analyze and respond to the SGEIS document.  You’ll find analyses by many knowledgeable folks including Chip Northrup, energy industry investor, and Lou Allstadt, former Executive VP of Mobil Oil Corporation: http://www.sourcewatch.org/index.php?title=2011_SGEIS_Flaws%28NY%29

Among other issues, the website offers comments on “mitigation” measures including the use of a new third cement casing: http://www.sourcewatch.org/index.php?title=2011_SGEIS_Flaws%28NY%29#Chapter_7_-_Mitigation_Measures

NOTE:  This article is cross-posted on the Accountability Central website at this link:  http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-does-cement-crack-part-2/   Accountability Central is part of the Governance & Accountability Institute, Inc.

 

Sep 14
Crack Cement 1
icon1 admin | icon2 Recent Posts | icon4 09 14th, 2011| icon32 Comments »


Does Cement Crack? – Part 1

New Public Focus on Role of Cement

& Whether ‘Proper Cementing’ Can Prevent Gas Migration,

Contamination of Water Wells & Acquifers

 

Schlumberger, a world leader in the oil and gas industry, literally wrote the book on "Well Cementing."

 

“Cementing an oil well is an inherently uncertain process.”
  • National Commission Final Report on Deepwater Horizon disaster
“Even a flawless primary cement job can be damaged by rig operations or well activities occurring after the cement has set.”
  • Schlumberger article in Oilfield Review, Autumn 2003
Cement is coming in for increased scrutiny since last year’s catastrophe in the Gulf of Mexico. The offshore drilling rig Deepwater Horizon sank after an explosion and fire that killed 11 workers and injured 16 others. The resulting oil spill is now considered the second largest environmental disaster in U.S. history.1
The rig was owned and operated by Transocean and leased by BP. Litigation is being discussed in terms of 20-year timelines. The cement seal and blowout preventer are said to have played key roles in the cause of the disaster.2

A National Commission appointed by President Barack Obama in May of last year issued a final report of nearly 400 pages. Among other issues, it discusses “The Inherently Uncertain Cementing Process.”

Until Deepwater Horizon, one would not expect the subject of cement to hold public interest; but the Commission’s analysis unfolds like a scientific detective story. For example, this excerpt and warning about cement (emphasis added):

“The Inherently Uncertain Cementing Process3

Cementing an oil well is an inherently uncertain process. … If done properly, the slug of cement will create a long and continuous seal around the production casing, and will fill the shoe track in the bottom of the final casing string. But things can go wrong even under optimal conditions. … Given the variety of things that can go wrong with a cement job, it is hardly surprising that a 2007 MMS study [Minerals Management Service, a federal regulatory agency] identified cementing problems as one of the ‘most significant factors’ leading to blowouts between 1992 and 2006.”

  • National Commission Final Report, Chapter 4, p. 99

New York State Department of Environmental Conservation (DEC) Commissioner Joe Martens put cement front and center when he made the following declaration and promise at his July 1 press conference:4

“Gas migration is the problem. … Poor cementing jobs were implicated in a lot of those cases [in Pennsylvania] where people ended up with gas in their [water] wells. We think that with proper cementing and this additional layer of casing, that problem will be essentially solved.”

Regulatory promises aside, what is the track record on cement?

By the way, those who interpret any question or challenge to energy industry practice as anti-drilling should read industry statements on the subject of cement.

In fact, Schlumberger, a world leader in the oil and gas industry, literally wrote the book on this subject – titled, Well Cementing (Second Edition, 2006) by Eric B. Nelson (and others). The introduction states (emphasis added):

“Despite recent advances in the cementing of oil and gas wells, many of today’s wells are at risk. … The environmental impact of contaminating a single fresh water aquifer is extremely serious. Therefore, the initial and long-term quality of the cement sheath and bond should be of prime importance to the operator, because it is essential for the safe and successful production of a well.”

This industry leader documents the critical role played by cement – and how easily it can fail and contaminate water aquifers. When you read this book and similar industry papers on the subject, you immerse yourself in serious discussions about the significance of annular gas flow and sustained casing pressure (SCP).

Jerry Lobdill is a retired physicist and chemical engineer in Fort Worth, TX, who has studied the technology of horizontal gas drilling and reviewed the Schlumberger text book. His 6-page paper on the subject is available on the internet.5

As he notes: “The cement job must fully surround the casing, with the casing approximately centered in the [well] bore. There must be no drilling mud or gas channels in the cement or around its interfaces with the [well] bore and the casing. The cement must form a bond with the rock formation and with the casing. If these conditions are not met then gas can migrate from the pay zone up the well bore as far as the surface.”

The Schlumberger book shows U.S. Minerals Management Service data from 22,000 underwater wells in the Gulf of Mexico that indicates cement failures rise with the age of the well.

According to Lobdill’s review of the data: “After 10 years about 40 percent of wells have cement failure. After 30 years, about 60 percent of wells have cement failure; and the failures have nothing to do with the fact that these are underwater wells.”

The Schlumberger Well Cementing book is available on Amazon – generally for $295 and up. For those who value an industry education on cement at a lower cost, there is a 15-page Schlumberger article available on the internet titled, From Mud to Cement – Building Gas Wells. It was published in Oilfield Review, Autumn 2003. See Links and Resources below for a copy.6

Uncontrolled gas migration that can contaminate surface and ground water is a well-known problem in the industry. As the article notes (p. 63):

“Since the earliest gas wells, uncontrolled migration of hydrocarbons to the surface has challenged the oil and gas industry. Gas migration, also called annular flow, can lead to sustained casing pressure (SCP), sometimes called sustained annular pressure (SAP). … Annular flow and SCP are significant problems affecting wells in many hydrocarbon-producing regions of the world.”

Schlumberger lists four categories of likely causes of uncontrolled gas migration in a well (p. 64):

  • Tubing and casing leaks
  • Poor mud displacement
  • Improper cement-slurry design
  • Damage to primary cement after setting

What is about to unfold in New York as the state government appears ready to open the door to shale gas extraction will tell the world whether citizens can believe government promises.

Leaders in the industry such as Schlumberger admit that “many of today’s [gas and oil] wells are at risk” due to ongoing problems in the cement process. Despite that admission, DEC Commissioner Joe Martens promises (emphasis added), “We think that with proper cementing and this additional layer of casing, that problem will be essentially solved.”

And from the same press conference (emphasis added):

“High volume drilling will be permitted on private lands but only under new rigorous and effective measures that mitigate the environmental impacts. We are going to do this safely.”

One notices a pattern when reading industry or government texts. For example, the problem isn’t solved. We think it will be essentially solved.

The Schlumberger article has similar language:

  • “… steps can be taken to mitigate the process.”
  • “… key to minimizing the migration ….”
  • “… the vulnerability of the cement to invasion by gas is reduced ….”

Is it unfair to expect operational excellence in such a complex industrial activity? New York State government is making a big bet that shale gas extraction can be done safely. Yet government lacks confidence in its own bet – that “We are going to do this safely.”

Why else does it exclude the watersheds of New York City and Syracuse and all government land? We’re told those two watersheds are “special,” but if government believes, “We are going to do this safely,” then government land (i.e., taxpayer land) and those special watersheds will be safe, right? Or weren’t we listening carefully?

In part two we’ll take a closer look at New York’s position on shale gas extraction and its reliance on “proper cementing” and a third well casing.

Meanwhile, the draft Supplemental Generic Environmental Impact Statement (dSGEIS) is now accepting public comments for only 90 days. Following are good sources for information.

New York State Department of Environmental Conservation: Revised Draft SGEIS (September 2011)http://www.dec.ny.gov/energy/75370.html

In addition, check out this helpful guide in the form of a volunteer Wiki website, hosted by the Center for Media and Democracy. It offers a detailed but user friendly guide for the lay person to understand, analyze and respond to the SGEIS document. You’ll find analyses by many knowledgeable folks including Chip Northrup, energy industry investor, and Lou Allstadt, former Executive VP of Mobil Oil Corporation: http://www.sourcewatch.org/index.php?title=2011_SGEIS_Flaws%28NY%29

Among other issues, the website offers comments on “mitigation” measures including the use of a new third cement casing: http://www.sourcewatch.org/index.php?title=2011_SGEIS_Flaws%28NY%29#Chapter_7_-_Mitigation_Measures

Links & Resources

1, 2 Deepwater Horizon references in Wikipedia

About the drilling rig: http://en.wikipedia.org/wiki/Deepwater_Horizon

About the explosion: http://en.wikipedia.org/wiki/Deepwater_Horizon_explosion

About the National Commission: http://en.wikipedia.org/wiki/National_Commission_on_the_BP_Deepwater_Horizon_Oil_Spill_and_Offshore_Drilling

3 National Commission on BP Deepwater Horizon Oil Spill And Offshore Drilling – official website where you can download the final report and other documents: http://www.oilspillcommission.gov/

The Inherently Uncertain Cementing Process – Chapter Four, p. 99. See also pp. 99-103 which goes into detail about “The Cementing Design: Critical Decision For A Fragile Formation” and much more.

4 Webcast of DEC Commissioner Joe Martens press conference, July 1, 2011 http://at.pscdn.net/008/00198/11/dec/0701/#

5 “Why Gas Well Drilling is Environmentally Risky,” by Jerry Lobdill, April 2, 2011 – the paper is available at this Mendeley link: http://www.mendeley.com/profiles/jerry-lobdill/

6 From Mud to Cement – Building Gas Wells, Schlumberger, by Claudio Brufatto and others, Oilfield Review, Autumn 2003, pp. 62-76 –

http://www.slb.com/~/media/Files/resources/oilfield_review/ors03/aut03/p62_76.ashx Pdf file:  ‘From Mud to Cement’ article

NOTE: This article is cross-posted on the Accountability Central website at this link:  http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-does-cement-crack-part-1/  Accountability Central is part of the Governance & Accountability Institute, Inc.

 

 

Aug 31

Test Water Before Drilling to Protect Your Valuable Asset;

Doesn’t Matter If You’re Pro or Anti Drilling;

What to Expect from Professional Water Testing


Testing ground and surface water is not a do-it-yourself project. The legal admissibility of test results depends on following a strict protocol. Shown is Nathan Askins, Environmental Analyst for Downstream Strategies.

 

Among the saddest regrets for property owners who believe their water is contaminated by gas drilling:  They didn’t test their water before drilling began.

As reported last year by National Geographic News:

“Because [property owners] did not test their water for chemicals before drilling began, they have no baseline against which to compare any current readings. … That omission is important….”1

Whether property owners embrace drilling or not, anyone who expects drilling in their community should have their water professionally tested using a certified analytical laboratory.  For most citizens, their property is the single most valuable asset they possess.  No surprise – contaminated water impacts property value, use and the ability to sell that property.

What to Expect

Testing your ground and surface water is not a do-it-yourself project.  The legal admissibility of your test results depends on a strict protocol.

Downstream Strategies is a multi-disciplinary, environmental consulting company based in Morgantown, WVA.  Its range of services includes policy analysis, field monitoring, expert testimony and litigation support, scientific research and more.  Link: http://www.downstreamstrategies.com/index.html

Evan Hansen, President, and Nathan Askins, Environmental Analyst, shared their guidance on what landowners should expect when considering professional monitoring and testing of water on their property.  The following is based on Downstream Strategies’ current practice and protocol.

Define Scope of Work

The water monitoring and testing service begins with defining the scope of the work with the property owner.  Does the property owner want only well water tested, or does he/she want all surface water (ponds and streams) as well as ground water (well water) tested?

What to Test For

Next, what do you want to test for?  As more is learned about chemicals used in drilling for shale gas, the potential test list grows longer.  Property owners should always look for the latest, updated water test recommendations if shale gas drilling is moving into the neighborhood.

Current recommendations include testing for pH, conductivity, total dissolved solids and arsenic to methane and BTEX chemicals (benzene, toluene, ethylbenzene and xylene) to radiation (gross alpha, gross beta and more).  A detailed list follows in this post.

Attention to Detail

Regardless of the scope of work, the attention to detail and rigor is far beyond the skill and equipment of most do-it-yourselfers.  For example:

  • Certified labs require multiple containers for each area sampled (water well, ponds, stream, etc.).  The lab provides the sampling containers.  Some labs require five containers; some require as many as 18.  In other words, if a property owner is testing two water wells, two ponds and a stream, that would equal five sample areas.  To that would be added a “field blank” sample, which is a quality assurance/quality control measure.  The required field blank containers would be filled with distilled, dionized water labeled and submitted to the lab along with the “real” samples.  For a project based on five sample areas plus the field blank – and using a lab that requires 18 containers per sample area – that amounts to 108 containers.  If the lab only requires five containers per sample area, that would be 30 containers.
  • Certain sample containers require zero headspace between the fill of water to be tested and the inside lid of the container.  In other words, no air space between the top of the water sample and the lid.  This protocol applies to lab testing for methane and the BTEX chemicals.
  • Downstream Strategies takes GPS (Global Positioning System) coordinates for each sampling area so the location of the sampling can be pinpointed.

Test Parameters

Following is a current list of what a property owner should consider testing for:

Current recommended water testing parameters include:

pH, acidity, alkalinity, hardness, conductivity, total dissolved solids, iron, aluminum, manganese, calcium, sodium, sulfate, chloride, arsenic, barium, strontium, lead, bromide.

Plus the following hydrocarbon-related parameters:

BTEX (benzene, toluene, ethylbenzene, and xylene); total petroleum hydrocarbons (TPH) in the gas, oil and diesel ranges; acrylonitrile; and methane.

In addition, sample for radiation:

gross alpha, gross beta, radium-226, and radium-228

Depending on the size of the property and the areas to be sampled, the time spent on your property could range from 4 to 8 hours.

Cost will be driven by the scope of the work. For example, one recent professional monitoring and testing involved a property with more than 50 acres.  The areas to be sampled included two ponds, two wells and a stream, and included a field blank.  A significant amount of travel was required which added to the expense.  Cost to the property owner in this case was about $7,000.  About half of that total cost was for the certified lab tests.

If the water monitoring service is sampling a property that is relatively local (reducing travel and labor costs); and only one water well plus field blank is to be tested, the approximate cost would be about $3,200.  If the property owner decides to eliminate the quality control/quality assurance of the field blank, and wanted only one water well tested, the cost would be about $2,500.

ShaleTest: Non-Profit Environmental Test Option

There are alternatives for landowners who find the cost of professional water monitoring and testing too high.

For example, ShaleTest is a non-profit organization founded last year by Tim Ruggiero and Calvin Tillman.  Recently, it became affiliated with Earthworks.  Link: http://www.shaletest.org/index.php

As it states on its website:  Their sole purpose is “to conduct air, water and soil testing for affected people who could not afford the high costs of testing.”

Headquartered in the heart of the Barnett Shale near Fort Worth, Texas, ShaleTest is up and running in three states – Texas, Pennsylvania and Arkansas, according to Ruggiero.  The organization is seeking to expand and is looking for volunteers, especially in Marcellus Shale states.

ShaleTest will use nationally certified laboratories with chain of custody certification.  Among its advisors is Wilma Subra, a recipient of the MacArthur Foundation’s Fellowship “Genius Award” for helping citizens cope with and fight environmental issues in their communities.

2 In states like New York with the equivalent of eminent domain in the form of  compulsory integration, property owners are not allowed to opt out of drilling activities.  They will be compelled to be integrated into a drilling unit.

Independent testing of your water is a positive step you can take to protect your property value should something go wrong.  Do not let the only water testing on your property be done by the gas industry.

Links & Resources

1 National Geographic News – Special Report, “A Dream Dashed by the Rush on Gas,” by Marianne Lavelle, October 17, 2010.  The citation from the article is found in the 6th paragraph under the subhead, “Tracking the Source of the Pollution” at this link: http://news.nationalgeographic.com/news/2010/10/101022-energy-marcellus-shale-gas-environment/

Downstream Strategies – Check out the company’s range of services on its website.  “Downstream Strategies offers environmental consulting services that combine sound interdisciplinary skills with a core belief in the importance of protecting the environment and linking economic development with natural resource stewardship.”

Website: http://www.downstreamstrategies.com/ Phone:  304-292-2450

ShaleTest – This organization springs from the Barnett Shale zone and was founded by Tim Ruggiero and Calvin Tillman, former mayor of DISH, Texas.  It’s purpose, as the website states:  “To provide environmental testing of private individuals drinking water, air and soil, for those affected or potentially affected by natural gas development whose personal financial situation prohibit the costs of test.”  Website: http://shaletest.org/ Phone: 530-237-4558

2 Compulsory integration is the law in New York State. Like forced pooling, it is a variation of eminent domain which is legal theft of surface and/or subsurface property rights.  Refer to the “Landowner Option Guide” on the NY Department of Environmental Conservation (DEC) website.  Note its warning to property owners in the fourth paragraph:  http://www.dec.ny.gov/energy/1590.html

See also this previous post, Broken Lease Agreements (scroll down about midway through the post): http://www.spectraenergywatch.com/blog/?p=1175

NOTE: This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-test-water-before-drilling-to-protect-your-valuable-asset/ Accountability Central is part of the Governance & Accountability Institute, Inc.

 

Aug 10

Day 29 & Counting:  No Spectra Energy Response to Stakeholders

Records Show Discharge of Industrial Waste, Drilling Mistake;

Property Owners Say They Were Promised

Gas Chromatography Test Results

Potential Gas Industry Role Model Found for Spectra Energy?


Map shows cluster of properties (#1-12) surrounding Spectra Energy's industrial compressor/underground storage facility with 13 injection/withdrawal wells.

Spectra Energy, recently cited by the feds for probable pipeline safety violations,1 remains absent from any meaningful conversation with concerned stakeholders in Pennsylvania.  Repeated phone calls and e-mails since July 12 receive no response.

Meanwhile, continuing issues raise questions about Spectra Energy’s performance at its Steckman Ridge compressor and underground natural gas storage facility in Clearville, PA, near the Maryland border.  Among the issues:

  • Gas chromatography test results – Why isn’t Spectra Energy sharing its complete gas chromatography test results of James and Karla Levy’s home and water well (number one on the map)?  Are the test methods flawed?  Or will the report show that Spectra Energy is producing gas from its storage wells?
  • Discharge of Industrial Waste – Spectra Energy’s SR 10 well, near the Levy property, was cited by the Pennsylvania Department of Environmental Protection (DEP) for a discharge of industrial waste onto the ground which subsequently polluted nearby water – probably Schaffer Creek.  This was two months after the well went into production, according to DEP and Federal Energy Regulatory Commission (FERC) records.
  • Drilling mistake – At Spectra Energy’s SR 11 injection/withdrawal well, the company drilled nearly 200 feet outside its permitted area into another formation and plugged the hole with cement to prevent gas migration, according to DEP records.

Gas Chromatography Tests

According to FERC and Property Owners James and Karla Levy, Spectra Energy asserts that its gas chromatography tests of the Levy’s home and water well show that natural gas is or was present, including methane.  It is allegedly not from Spectra Energy’s Steckman Ridge storage operation, according to what FERC and the Levys were told by the company.  To date, however, Spectra Energy declines to respond to a request from this writer for a copy of the test results which, presumably, would support its position.2

In fact, according to the Levys, Spectra Energy representatives promised them several times to provide copies of the test results; but they did not make good on that promise.  “I guess we were insanely naive to think they could possibly be ‘good neighbors’ since we are certain that there is still significant methane in our well,” says Karla Levy.

If there is no problem, what’s the problem with sharing test results?  Why won’t Spectra Energy representatives keep their promise to landowners?

This would be consistent with Spectra Energy’s public commitment to “integrity, transparency and accountability.”3

Unless the test results raise more questions.

For example, in addition to looking at test methods which may or may not be designed to produce non-matching samples,4 would its test results show that Spectra Energy is producing gas from its storage wells?

A source familiar with the natural gas industry says:  “Perhaps the reason Spectra Energy does not want to show the gas chromatography test results is because it will show more than methane such as butane, propane and other gases – in a way that could indicate that those injection/withdrawal wells are producing gas.”

Storing Gas or Producing It?

But why would Spectra Energy care if the public knew the injection/withdrawal wells were also producing native gas?  They can do this legally – even as they legally seized surface and subsurface property rights under the threat of eminent domain.  The power of eminent domain was granted to Spectra Energy by FERC.

And the Marcellus Shale “gold rush” will see more use of eminent domain in all of its forms as gas companies continue the land rush in Pennsylvania, New York and other states.

But it is not well known that FERC permits storage field operators like Spectra Energy to seek and to capture migrating gas — including “native” or new gas (not to be confused with “storage” gas).

Industrial Waste Spill at SR 10

Spectra Energy is on record as declaring, “Safety is our franchise.  It’s what we do.”  This proclamation is from Bill Yardley, Group Vice President of Spectra Energy.5

Despite that brand promise, in June of 2009, according to DEP records, Spectra Energy was cited for a violation of the Clean Streams Law when it discharged industrial waste at its injection/withdrawal well SR 10.  This is the injection/withdrawal well closest to the Levy water well.  DEP records cite a “Discharge of Industrial waste onto the ground (sediment runoff into stream).”6

Drilling Error – Gas Migration?

Spectra Energy’s SR 11 injection/withdrawal well went into service in April 2009.  Apparently in March, it drilled through the Oriskany formation into the formation below it.  The risk is that gas will migrate into other formations as Spectra Energy admitted in reports it is required to file with FERC.

Gas migration is a drilling problem acknowledged by geologists and government officials.  Recently, Joe Martens, New York State Commissioner of the Department of Environmental Conservation, said:

“Gas migration is the problem. … Poor cementing jobs were implicated in a lot of those cases where people ended up with gas in their [water] wells.”7

SR 11 is located on Glynn Needham’s property.  (Her property is not currently identified on the map but it is roughly between number 3 and 12 on the map.  One can see “Well SR 11” next to the yellow diamond shape.)  The company drilled through the Oriskany formation into the formation below it, according to DEP well completion reports and Spectra Energy’s biweekly report (submitted April 3, 2009).

According to Spectra Energy’s statement on its biweekly report:8 “… during well construction Steckman drilled into the Helderberg formation, directly below the Oriskany.”

Spectra Energy’s biweekly report continues (emphasis added):  “Steckman is scheduling a contractor to cement the 192-foot deep area within the Helderberg formation and expects to have this work completed in the next two to four weeks.  Cementing this 192-foot area will prevent any migration [of gas] into other formations.”

Find Role Model for Spectra Energy

Property owners surrounding Spectra Energy’s heavy industrial complex at Steckman Ridge seek answers to legitimate questions.  They are not ‘picking on’ the nearly $5 billion dollar Spectra Energy.

They are worried about a continuing pattern of health, water and operational concerns.  It is not corporate citizenship to refuse to respond to neighbors’ issues.  It is not corporate citizenship to promise to share gas chromatography test results then renege on that promise.

And despite corporate platitudes about safety, Spectra Energy does not have a best-in-class track record that might build confidence among neighbors.

Clearville residents know, for example, that a mere three years before Spectra Energy applied to FERC for permission to construct Steckman Ridge, an inferno exploded at another of its underground storage reservoirs outside of Houston called Moss Bluff.

According to public accounts, there were two explosions, a fire that burned for six-and one-half days sending flames as high as 1,000 feet, as 6 billion cubic feet of natural gas burned off in an uncontrolled release.  Fortunately, there were no fatalities; but there were two separate evacuations — 30 families in a one-mile radius followed by an evacuation of 100 people from a three-mile radius.

Steckman Ridge is about 3 miles from an elementary school.

We quoted Rich Liroff, Executive Director of the Investor Environmental Health Network, in part 3 who says, “companies must candidly address public concerns.”9

Constructive Request

Let’s end on a constructive note and offer Spectra Energy executives and directors a possible role model example from their own industry.

Liroff says, “Companies should also acknowledge reality and report when they fail to measure up to regulatory standards; for example, Talisman posts on its website the notices of violation it receives in Pennsylvania and its responses.”

He is referring to Talisman Energy USA, Inc., a natural gas exploration and production company, with a Canadian parent.  Here is the link to which Liroff refers: http://www.talismanusa.com/how_we_operate/notices-of-violation/

The Canadian connection might be helpful since Spectra Energy CEO Greg Ebel is a native of Canada.  Wouldn’t it be great if they speak the same language in terms of safety, integrity, transparency and accountability.

Links & Resources

1 Spectra Energy Cited by Feds for probable Pipeline Safety ViolationsNatural Gas Watch.org, July 27, 2011  http://www.naturalgaswatch.org/?p=744

This is a useful link because you can download the original documents from the government (Pipeline and Hazardous Materials Safety Administration) and Spectra Energy’s response – which seems to be summed up by, “Therefore, we are not contesting this finding.”  Ironically, the exchange of documents is to and from Andrew “Bitten by the Snake” Drake, Vice President of Transmission Services for Spectra Energy.  For context, see this post:  Bitten by the Snakehttp://www.spectraenergywatch.com/blog/?p=1214

2 Gas/Methane Venting from Property Owners’ Well – For reference on this incident, see the following post:  http://www.spectraenergywatch.com/blog/?p=1328

3 Integrity, transparency and accountability – Refer to the company’s 2009 Sustainability Report:  “We conduct our business with integrity, transparency and accountability.  Our corporate governance systems are designed to be transparent ….” Link: http://www.spectraenergy.com/our_responsibility/2009-Sustainability-Report/ensure_strong_corporate_governance/index.html

4 Gas chromatography test results can depend on a number of factors – For reference on testing methods that can produce non-matching results see the following post: http://www.spectraenergywatch.com/blog/?p=1353

5 “Safety is our franchise” – For the full context of Spectra Energy Group VP Bill Yardley’s assertion, see this post (footnote #1 under Links & Resources) – Spectra Butter Jobhttp://www.spectraenergywatch.com/blog/?p=753

6 SR 10 DEP Environmental Health & Safety Violation – Note the Violation ID number 565260 and date (6/11/2009) on both web pages.  The violation description on the first webpage (Pdf file 1) says, “Discharge of IW [Industrial Waste] to ground.”  The second webpage (link) says, “Discharge of pollultional [sic] material to waters of Commonwealth.”

Pdf File 1:  DEP Violation SR10 IW_WA

Link 2: http://www.ahs2.dep.state.pa.us/eFACTSWeb/searchResults_singleViol.aspx?InspectionID=1804132

7 Gas Migration – New York State DEC Commissioner Joe Martens made this comment during the Q&A following his July 1 press conference.  Refer to webcast of the DEC press conference, July 1, 2011 – http://at.pscdn.net/008/00198/11/dec/0701/#

See also NY Promises: http://www.spectraenergywatch.com/blog/?p=1321

8 Steckman Ridge Bi-Weekly Environmental Progress Report, April 3, 2009 – This form is submitted by Spectra Energy to FERC.  The last page of the document (p. 3 of 3) contains the admission of drilling through the Oriskany formation into the Helderberg formation.  Pdf file:  SR BiWeekly 4-3-09

9 The Real Story About the Risks of Fracking by Richard Liroff, July 18, 2011, published on GreenBiz.comhttp://www.greenbiz.com/news/2011/07/15/real-story-about-risks-fracking?page=0%2C2

NOTE: This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-day-27-and-counting-no-spectra-energy-response-to-stakeholders/ Accountability Central is part of the Governance & Accountability Institute, Inc.

Aug 3

Citizen Regulators Are Key to ‘Social License to Operate’

Will Spectra Energy Share Gas Chromatography Test Results?

Will Results Support Company’s Statements to Property Owners & FERC?

As reported in Parts 1 and 2, there is a pattern of health, water and operational concerns among landowners who live near Spectra Energy’s huge compressor and underground natural gas storage facility in Clearville, Pennsylvania.1

Located in Bedford County, near the Maryland border, the Steckman Ridge heavy industrial facility is a 12-billion cubic feet natural gas reservoir in depleted gas wells in the Oriskany formation.  A nearly 5,000 horsepower compressor station sits on top to control the injection and withdrawal of gas in and out of the reservoir.

This is done via 13 injection/withdrawal wells.  Spectra Energy has permission to drill up to 23 wells at this facility.  It began phased-in operations in 2009.

We have reported on specific incidents, named property owners and shared comments from the Federal Energy Regulatory Commission (FERC), which has been forthcoming on the issues.

In addition, the Pennsylvania Department of Environmental Protection (DEP) is gathering information from appropriate staff in various offices and will provide a response to questions raised by this writer.

Spectra Energy Absent – Why?

Conspicuously absent from this discussion of stakeholder concerns is Spectra Energy.  Repeated requests for comment by phone and e-mail – dating back to July 12 – have resulted in no response to date.

Rather than feel aggrieved by questions asked of it, Spectra Energy executives should see this as an opportunity to engage its public stakeholders who are worried about what may be happening at its facility.  As a publicly held corporation, Spectra Energy’s Directors understand what socially responsible investors mean when they speak about a “social license to operate.”

Social License to Operate

Richard Liroff, Executive Director of the Investor Environmental Health Network, recently wrote about this in a blog post.  He notes:

“The price companies pay to earn the ‘social license to operate’ is more than just the regulatory fee for a drilling permit. … To earn and maintain their social license to operate, companies must candidly address public concerns and describe measurable performance goals they have set and concrete actions they are taking.”2

This would seem to align with Spectra Energy’s corporate principles on its website.  For example, consider this one from the company’s 2009 Sustainability Report:

“We conduct our business with integrity, transparency and accountability.  Our corporate governance systems are designed to be transparent ….” Link: http://www.spectraenergy.com/our_responsibility/2009-Sustainability-Report/ensure_strong_corporate_governance/index.html

Integrity, transparency and accountability sound good.  If there is a disconnect, where is it?

Share the Test Results

For example, in Part 1, we reported about James and Karla Levy’s water well head blowing off four times due to a build up of natural gas pressure, including methane.  Spectra Energy conducted a gas chromatography test and is said to have determined that the natural gas was not from the Steckman Ridge storage reservoir.  Despite that, the company installed a methane vent or separator on the Levy’s property.

Sharing the results of this test would support Spectra Energy’s claim that its facility and nearby injection/withdrawal wells are not responsible for the presence of natural gas including methane in the Levy’s home and water well.  To date, however, Spectra Energy has not responded to a request for a copy of the gas chromatography report.

Why not share the report to demonstrate integrity, transparency and accountability?  Unless the actual test results raise questions.

Do Test Results Raise Questions?

According to a source familiar with natural gas operations, chromatography results can depend on a number of factors including place and time of sampling.

For example, from where were the samples taken?  Our source says, “If they took it from gas being injected into the reservoir, this would be considered ‘pipeline gas’ and the gas chromatography would be different from gas taken out of the reservoir (‘storage gas’).”

“Gas chromatography can change daily if they are injecting and withdrawing frequently and who knows if the samples (landowners vs Spectra Energy) were taken on the same day and time.”

If Spectra Energy did not already do this, our source suggests hiring “a company like Praxair to add a tracer gas to the reservoir to see if it shows up in the landowner’s water well.”

For a better understanding of this, the Praxair website offers a downloadable pdf file titled, Seeper Trace Leak Detection for In-Situ Gas Storage Sequestration and EOR Sites.3 Here is an excerpt (emphasis added):

In-Situ Natural Gas Storage

“The addition of tracer to underground natural gas storage facilities can help answer a variety of questions.

• Identification of Faulty Wells. If gas is detected in near-surface water wells or monitoring wells, the injection well providing the pathway to the surface can be positively identified.

• Identification of Communication Between Strata.  If tracer chemicals are detected in strata either above or below the injection zone, the approximate area of the communication between strata may be indicated by the identity of the tracer.

• Identification of the Injected Gas.  The tracer chemicals provide a positive means of source identification where the injection needs to be distinguished from background or existing gas in the formation.”

Perhaps Spectra Energy did employ tracer gas – all the more reason to share its due diligence with property owner/stakeholders who are concerned about health, water and operational issues at the company’s large industrial facility.

If there are no issues at Steckman Ridge, why not resolve the concerns of neighboring property owners?

Socially responsible shareholders like Rich Liroff do not want to destroy the natural gas industry.  They do want the industry and companies like Spectra Energy to demonstrate best practices not best platitudes.

Integrity, transparency, accountability.

Links and Resources

1 Part 1 Link: http://www.spectraenergywatch.com/blog/?p=1328

Part 2 Link: http://www.spectraenergywatch.com/blog/?p=1342

2 The Real Story About the Risks of Fracking by Richard Liroff, July 18, 2011, published on GreenBiz.com – http://www.greenbiz.com/news/2011/07/15/real-story-about-risks-fracking?page=0%2C2

3 Praxair, Inc., website: http://www.praxair.com/praxair.nsf

Seeper Trace Leak Detection for In-Situ Gas Storage – pdf file:  P-9921

NOTE: This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-citizen-regulators-are-key-to-social-license-to-operate-part-3/ Accountability Central is part of the Governance & Accountability Institute, Inc.

 

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