What Fines Reveal About Drilling in State
Pittsburgh Post-Gazette
17 April 2011
By Sean D. Hamill
When Chief Oil & Gas landed near the top of several lists --
including the most fines of any Marcellus Shale drilling company in
Pennsylvania -- its leadership asked for a meeting with the head of the
Department of Environmental Protection.
Chief's operations leadership flew up from Dallas because "they were
not pleased," recalled then-DEP Secretary John Hanger recently of that
meeting last summer. "They told me they were taking steps to improve
their environmental performance, improving their control of water,
improving their command and control on site."
Chief was moved to change after it saw DEP figures showing it had more
violations than almost any Marcellus Shale driller in the state and
more fines -- eight, but soon to be nine, for a total of $99,100. Half
of its fines were for the same reasons: overflows or failures of drill
pits that held water, drill cuttings and mud.
"No one wants to be on a list," said Chief's spokeswoman Kristi
Gittins.
"We've been drilling shale for 15 years and we're good at it, so, we
were surprised by the list of violations and fines we received" in
Pennsylvania.
It was exactly the response the state was looking for.
If violations were "the equivalent of a teacher sending a letter home
to your parents" since they come with no direct financial cost beyond
correcting for them, Mr. Hanger said fines "might be the equivalent of
school detention or suspension" designed to get your attention even
more.
He said he wanted to reserve fines for the worst violations, where
there was a potential harm either to the environment or to people -- or
if the company was a repeat offender that hadn't changed its habits
after the first case.
"One of the things I very much believe in is working with a company
that demonstrates sincerely that they get the message -- and Chief
did," said Mr. Hanger, whose administration oversaw nearly every fine
assessed on Marcellus Shale drillers to date.
But while fines might be an attention-getter for the companies, very
few of them make the public spotlight in a DEP press release.
And though DEP includes a list of all violations on its website, it did
not list fines associated with those violations until it responded to a
Post-Gazette
Right-to-Know request for a list of all fines last month.
That DEP data on fines shows that:
• Between 2005 and Feb. 1, 2011, DEP regulators have imposed 89 fines
against Marcellus Shale-related companies for a total of $2,106,318,
though for reasons the DEP could not explain, it omitted seven of the
cases from its initial response;
• The average fine is $23,666, but if the four largest fines that
together total $764,590 are taken out, the average dips to $15,785;
• Nearly one-third of the cases involved some type of discharge of
either frack water, drill pit water, drill cuttings and mud, or some
other type of industrial waste that either was spilled, overflowed a
pit, or blew out onto the ground and in some cases reached local
streams or wetlands;
• There was just one fine in 2006 and one in 2007, then 11 in 2008, but
32 in 2009, 42 in 2010 and two more in January 2011;
• The fines are -- not surprisingly -- concentrated in two of DEP's six
geographic areas, with 42 fines in the heavily drilled southwest
region, and 38 in equally busy north-central, and just five in the
northeast and four in the northwest region;
• A total of 32 companies had at least one fine, but 63 of the 89 fines
were assessed against just 13 companies that all had three or more
violations;
• Chief had the most fines with nine cases, followed by Range Resources
and Chesapeake Energy (seven each), then Atlas Energy Resources (six)
and Energy Corp. of America (five);
• EOG Resources had the single largest fine ($353,419) and was fined
the most in total with $386,141, followed by Atlas ($295,300) Range
($288,875) Cabot ($192,069) and XTO Energy ($166,630).
Marcellus Shale drillers have argued that the thousands of violations
issued against them by the DEP in recent years have been imposed
inconsistently.
Last month that led the new DEP administration under Secretary Michael
Krancer to require that all Marcellus Shale enforcements go through
Harrisburg for approval, including fines, at least for a few months.
But industry officials say by and large they haven't had the same
problem with the way fines have been imposed, even after the
Post-Gazette provided them with a copy of the DEP information and a
breakdown of the number and costs of the fines.
"In cases where there have been real problems, I don't think they're so
outrageous," said Lou D'Amico, executive director of the Pennsylvania
Independent Oil and Gas Association.
Ms. Gittins said that even Chief, a strong critic of the way violations
have been meted out, had no problem with the fines either.
"DEP is more consistent when it comes to applying fines," she said.
"Overall, the DEP has been fair and the fines assessed so far appear to
relate directly to the seriousness of the violation."
Environmental advocates, though, said that the DEP data and analysis of
the costs and impact demonstrate that the fines are too lenient.
With nearly half of all fines being $7,000 or less, "that will have a
minimal impact on their operations," said Tom Au, conservation chair
for the Pennsylvania Chapter of the Sierra Club. "They'll just see them
as a cost of doing business."
PennFuture proposes increasing fines on drillers as part of its
10-point plan to get Marcellus Shale drillers to improve their
operations.
"A fine for environmental drillers really should hurt the pocketbook,"
said PennFuture president Jan Jarrett.
"Even that $24,000 average [fine], in terms of the cost of putting up
one of those multimillion dollars wells, that's just so much background
noise to these companies."
State Sen. Jim Ferlo, D-Highland Park, has a bill that would increase
fines in the Oil & Gas Act that regulates the Marcellus Shale
industry.
Under his proposal, he would increase the maximum fine from $25,000 to
$100,000, and the fine for each day of continual violation from $1,000
per day to $10,500 per day.
Mr. Hanger said he believes the state's Clean Streams Law, which is
applied if well spills make their way to state waterways, should also
be increased.
Currently, a violation of the streams law is punishable by up to
$10,000-per-day fine.
Industry representatives didn't think raising the fines was necessary.
"The way I hear the issue is it's not the amount of the fine, it's how
do we improve performance to avoid them in the first place," said
Kathryn Klaber, executive director of the Marcellus Shale Coalition, an
industry group representing the state's operators.
But state Sen. Mary Jo White, R-Venango, who chairs the Senate's
Environmental Resources and Energy Committee, which would have to
approve such a proposal first, said she would consider such an idea.
"Does a larger fine get their attention? Maybe," she said. "I'd
certainly be willing to look at it, though I don't want to pick on any
one industry."
In addition, Lt. Gov. Jim Cawley, chairman of Gov. Tom Corbett's
Marcellus Shale Task Force, said this week increasing fines "is
something we're looking at on the task force."
He said the task force will propose increasing fines if it believes the
action would help improve environmental compliance and can be applied
consistently because "no amount of economic opportunity is worth
corrupting our environment."
But have all those fines so far had an impact? Did they change behavior?
Company representatives said that every fine is an immediate red flag
and ends up on the desk of their senior leadership -- and beyond.
"Without question, inspections, issuing violations and, in particular,
fines and, in some cases, suspension of operations definitely impact
behavior," said Range Resources spokesman Matt Pitzarella, whose
company is one of the busiest drillers in the state and had the second
highest number of fines and third highest cost of those fines.
"People can lose contracts when someone is issued a fine or a
violation, and someone can lose their job," he said.
Moreover, he said: "There have been cases where an operator got a
significant fine, or a repeat offender got another fine, and all of our
stock prices took a hit," he said.
In one case, Range was hit with a $141,175 fine when drill pit water
ended up running off the well site into a stream in Washington County
in 2009 -- a spill that the company attributed to a failed coupling on
some pipes.
Range had the manufacturer of the pipe fly to Pittsburgh to be at the
site the next day and correct the problem, Mr. Pitzarella said.
In Chief's case, after all of its fines and the meeting with Mr.
Hanger, it conducted a review of its operations.
As a result, the company fired some employees and subcontractors, Ms.
Gittins said. It began lining its entire site with plastic to help
contain any spill, and also went to a closed-loop system to contain
drill pit water, which was the cause of four of its nine fines.
"When someone loses a job or a contract, that's a pretty clear sign
that it had an impact," she said.
For an interactive map that shows Marcellus Shale drillers and the
violations for which they have been fined, visit
www.post-gazette.com/pipeline.
Sean D. Hamill: shamill@post-gazette.com or 412-263-2579.
First published on April 17, 2011 at 12:00 am