Lower oil prices could lead to increased production violations, agency says – Prairie Business

[colored_box color=green]Don Morrison, executive director of the Dakota Resource Council, has fought on behalf of landowners to mitigate impacts of oil drilling on farmland in the state. Nicholas Kusnetz/Center for Public Integrity[/colored_box]

Lower oil prices could lead to increased production violations, agency says

By: Patrick Springer, Forum News Service

FARGO – Low oil prices sometimes can tempt less scrupulous developers to cut corners that could result in violations or problems, North Dakota’s top regulator said.

For that reason, inspectors are being vigilant since oil prices began their steep slide last summer, said Lynn Helms, director of the North Dakota Department of Mineral Resources.

“We haven’t started to see evidence of it yet, but that’s of concern,” Helms recently told Forum News Service.

“We saw it very significantly in the ’08-’09 price plunge,” Helms said of some operators taking shortcuts because of cost pressures. “We’ve seen it, and it’s a lesson that we really need to take to heart.”

North Dakota has an abandoned well site restoration fund, now with a balance of $11 million, financed by a portion of the oil extraction tax, available to remediate sites. It also has a bond requirement for oil and gas developers.

State oil and gas regulators have been under fire in recent months because of high-profile mishaps, including large pipeline spills. Some critics have said North Dakota regulators’ practice of using a large fine as an incentive to follow directives to address problems, then waiving most of the fine, isn’t an effective deterrent.

But Helms continues to defend the practice, arguing that the vast majority of companies have complied with directives. Still, he said, if inspectors find evidence a company acted willfully or with reckless disregard, stiffer penalties would be in order.

“If that’s the case, then the portion of the penalty up front should be larger and more punitive,” he said, adding the policy is open to “some shifting.”

“We’re looking at rebalancing the equation,” Helms said, adding that between 12 and 15 percent of fines historically have been paid up front when companies are cited for violations.

Legislative proposals to require pipeline flow meters and cut-off valves are welcome, Helms said. “It needs to be more proactive and aggressive. We’re very supportive of all of that.”

Kari Cutting, vice president of the North Dakota Petroleum Council, which represents the oil and gas industry, said petroleum companies have strong incentives not to take shortcuts that would risk violations or spills.

“That’s not in their best interest,” she said. “They want to be looked upon as good neighbors.”

Most companies operating in western North Dakota’s Bakken Formation with significant investments have a long-term view. Many have announced they have no plans to lay off workers because they want to be ready when oil prices rebound and production rises, Cutting said.

Large companies have strict operating and safety policies, and employees are required to follow them, she added.

Don Morrison, executive director of the Dakota Resource Council, said he doesn’t expect any real changes in behavior from oil companies regardless of the price of oil.

When oil prices were high, companies were scrambling to drill and pump oil as quickly as possible, which Morrison believes made violations and disorderly development more prevalent.

“We haven’t seen a lot of concern, really, about cutting corners when prices were high. That’s my real view of all of this. Can it get much worse than it is now?”

The slowdown, however, could allow companies to catch up with infrastructure, and that would be helpful, Morrison said.

“I think it could actually go either way,” he said of the consequences of lower oil prices.

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