Utah’s oil and gas division has ‘alarming’ lack of oversight

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November 20, 2019
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Utah’s oil and gas division has ‘alarming’ lack of oversight

A blistering legislative audit of Utah’s oil and gas division found it “alarming” that regulators are not carrying out their state-mandated oversight of nearly 200 drilling operators, letting violations go unresolved for years and not forcing the cleanup of environmental contamination at waste disposal sites.

The Division of Oil, Gas and Mining “has not adequately fulfilled” its responsibilities outlined in statute and administrative rules, the audit says. “Over 100 noncompliant issues remain unresolved and administrative rule has not been consistently enforced.

“With the risk of long-term impacts to health, safety and the environment, it is alarming that the oil and gas program has not more diligently fulfilled its regulatory responsibilities,” it continues.

Specifically, the audit found:

  • 105 noncompliant wells for which violations, or noncompliance issues, have not been resolved.
  • Violations are required to be resolved in 30 days, yet some are nearly 3 years old.
  • Unresolved environmental contamination at two waste disposal sites, one of which has likely been going on for an extended length of time.
  • Taxpayers on the hook for nearly $1 million for abandoned wells or shut-in wells that have not been reclaimed by financially unstable operators.

The audit was released Tuesday as it was presented to members of the Legislative Audit Subcommittee, with several lawmakers asking tough questions and finding its conclusions troubling.

“It strikes me that this is just a very toothless watchdog that we have with oil and gas,” said Rep. Brian King, D-Salt Lake City. “You have uncovered some very troubling things for me.”

King, Sen. Karen Mayne, D-West Valley City, and Sen. Evan Vickers, R-Cedar City, all expressed concern that the division could not provide proof of any fine or penalty being pursued by the division since 1995.

“Twenty four years without a fine,” Mayne declared. “You kidding me? Somebody is not taking care of business.”

Added Vickers: “That is a glaring statistic.”

The state agency and division directors were quick to assure lawmakers changes in the regulatory environment are are already underway and they are committed to change.

“It isn’t enough to say we recognize we need to improve,” wrote Brian Steed, executive director of the Utah Department of Natural Resource, which oversees the Division of Oil, Gas and Mining, and the division director, John Baza, in response. Steed and Baza wrote a detailed two page list of proposed actions the division plans to take.

“The audit clearly highlights the need to bolster our culture of compliance within the oil and gas program. … Our division and program actions will speak louder than words,” they wrote, detailing the reforms.

In prepared statement from the division, Baza added: “We are taking this audit very seriously. It has been a painful process to see where we have fallen short, but we are dedicated to improving our leadership, culture and expectations,” he said. “Utahns need to know that we are protecting public safety and the environment while performing our jobs as oil and gas regulators. This audit gives us guidance on how to better fulfill that mission.”

Steed told the committee the 105 noncompliance issues have been reduced to around 30 and other improvements are unfolding within the agency.

The division has regulatory oversight of 193 unique oil and gas operators in the state, with 20 of the largest operators producing 98% of Utah’s oil. There are 16,141 active wells and 29 waste disposal facilities.

Field staff, according to the audit, performed 6,859 inspections in 2018, but the audit noted that the program is “significantly behind in its regulatory work.”

The audit noted there were 105 noncompliant wells for which violations have not been resolved, and according to the oil and gas program, the violations should be addressed within 30 days. Instead, inspectors are not following up and some of the violations are nearly 3 years old.

“Regulation of the oil and gas industry is a vital service provided by the state by the oil and gas program,” the audit notes. “Failure to fulfill this responsibility may have long-term impacts on health, safety and the environment. Two such cases contributed to environmental hazards that may have been prevented with consistent inspections, follow-up and enforcement.”

The audit pointed to the May 2016 directive by the division for an operator of a waste disposal facility to put in new liners at evaporation ponds because the existing liners were old. The operator agreed to the new installation in a response letter in July 2018 but never complied. A spill was subsequently discovered in April of this year and remains under investigation by the division, the Utah Department of Environmental Quality and the U.S. Environmental Protection Agency.

Agencies are trying to determine the extent of contamination, and the audit noted the leak had likely been going on for some time because of dead vegetation seen in the area.

In another instance, a different waste disposal facility experienced an accumulation of oil at its ponds, which is required to be removed in 24 hours. That, too, has been allowed to go unaddressed, according to the audit.

The audit said some operators with violations have had multiple instances of noncompliance and are continuing to ignore the division’s requests, even blatantly applying for permits for new wells.

The culture of noncompliance has been perpetuated by a division, that in its entire history, has never leveled fines or penalties through civil proceedings, even though it is authorized under state law, the audit found.

When the Office of the Legislative General surveyed surrounding states, it found those states had pursued fines at least once during the last two years.

Auditors recommended the division work with the Utah Legislature to “resolve” the noncompliance issues.

Beyond lack of paperwork and failure to prioritize inspections in the field, the audit found that six problematic operators with unstable financial profiles will likely step away from shut-in or abandoned wells, leaving taxpayers to pick up reclamation costs of nearly $1 million.

Auditors also found that the division, instead of beefing up its regulatory oversight and hiring more employees to conduct inspections, has been stockpiling money in a reserve fund — another sign of mismanagement.

The $4.1 million could be used to help the understaffed division, the audit says, emphasizing Colorado’s inspectors handle about 600 wells a year, while Utah’s inspectors have a workload of 1,100 wells.

“Prioritizing future funding streams over programmatic needs have resulted in increased risks and costs to the state as discussed throughout this report,” the audit notes.

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