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by Jessica Sena, Communications Consultant Montana Petroleum Association 

State and local coffers have been impacted by the loss of tax revenue from natural resource development. Oil and natural gas production has not yet recovered in Montana, though prices have reached highs not seen since 2014.

Insufficient infrastructure, service shortages in many areas, and public pushback all pose challenges to viable exploration, prolonging the recovery of drilling activity. While limiting factors to development will always exist in the risky and costly business of oil and gas exploration, the increased influence of public opinion on public policy also effects the economic landscape of Montana.

To Zone or Not to Zone

Despite record low drilling activity, opposition to development has not diminished. In Stillwater County, a group of landowners have been petitioning the County to regulate oil, natural gas, and coal bed methane extraction on 83,000 acres of what’s been proposed as the “Stillwater County Beartooth Front District” - a citizen-initiated zone three years in the making. Petitioners view existing regulation as inadequate for protecting the environment and their rural way of life.

Back in January, the Stillwater County Commission denied the petition after County Attorney Nancy Rhode advised Clerk & Recorder Heidi Stadel to invalidate it on the basis that signatories did not include mineral owners.

But the battle is far from over.

On February 26, advocates for the petition, calling themselves the Beartooth Front Coalition, filed a lawsuit against Stillwater County in District Court for petition guidelines (proposed in January) that they say were not made clear to them throughout the signature collection process. Guidelines require mineral owners to be included in zoning petitions.  

On March 13, the comment period on the proposed guidelines was closed. Hearings of the recently filed lawsuit  remain ongoing.

Defending the Commissioners

Contemporary regulation for oil and natural gas is complex and comprehensive, contributing positively to Montana’s environmental record of responsible development. The relentless pursuit for burgeoning regulation, in the absence of material harm, is superfluous for ensuring the protection of public health and the environment.

* In more than 60 years of hydraulic fracturing, there has not been a single case of groundwater contamination as the result of stimulation activities.

* A 2014 U.S. Geological Survey study of 30 randomly distributed domestic wells tested in oil producing areas of Montana and North Dakota showed shallow groundwater quality had not been affected by energy development.

* Flaring of fugitive emissions (methane) from oil wells is captured at a rate above 90 percent in Montana. 

* At the height of production (2011-2013), Richland County (the highest in oil production) maintained an “A” rating by the American Heart and Lung Association for air quality.

Unintended Consequences

Consider the negative impact that time, resource, and financial restraints pose to Stillwater County Commissioners, including the inability to effectively oversee permitting and environmental compliance. Such limitations contradict the intent of the petition.

Another point of contention is whether the Stillwater County Commission has the legal right to establish independent rules for oil and gas permitting. The proposed district may undermine legally-determined spacing units for oil and natural gas wells, infringing on the correlative rights of mineral owners, and resulting in wasted oil and natural gas resources by preventing reasonable access for development. Sounds like a lawyer’s dream.

* MCA 82-11-201 The Establishment of Well Spacing Units

This statute gives the Board of Oil and Gas Conservation (BOGC) the authority to space wells in a manner that protects the correlative rights of mineral owners, prevents the drilling of unnecessary wells, and prevents the waste of oil and natural gas resources. The BOGC has the legal authority to increase or decrease the size of a temporary or permanent spacing unit.

Both surface and mineral owners have property rights, and legally, the mineral estate is the dominant estate. Stillwater County Commissions were judicious in their consideration of mineral owners’ rights.

Montana law addresses development and compensation on split estates. For reasonable access to surface use, companies pay compensation to the surface owner as negotiated prior to drilling. But what happens when a mineral owner can’t lease their property for development? There is no such law that says these property owners must be compensated. This sets the stage for “takings without compensation” lawsuits, which could overwhelm county government and local taxpayers.

Only in Montana

Be it objections to leases, lawsuits, pushback or petitions, each inevitable obstacle to development demonstrates a right that exists exclusively in Montana: broad and unfettered protest ability.

Montana is the lone oil and gas state that allows anyone, anywhere to protest a proposed well. The opportunity to go before the Board of Oil and Gas Conservation (BOGC) ahead of approval for drilling operations is afforded to everyone, regardless of whether a person has a legal right to the proposed property. This unlimited protest ability holds industry to a higher standard by placing an additional burden of proof on companies to address concerns brought forth by the public.

If an application to drill is protested, the BOGC considers the validity of claims made during public hearings. The right to protest must not be confused with a right to unjustly prevent or impede legal development. Often, protests are based on false, preconceived notions about oil and natural gas, or the temporary inconvenience of a drilling operation - such as noise, increased traffic, and dust. Akin to any construction operation, these effects do not justify the denial of a permit to operate.

Organizers behind the Beartooth Front petition in Stillwater County have been frequent flyers at hearings of the Board of Oil and Gas, routinely protesting drilling applications all over the state. In public hearings on protested applications, the Board has often allowed testimony to carry on for hours at a time, giving everyone the opportunity to express their concerns. The reasoning behind Board decisions to permit drilling applications despite opposition, is often that protests are largely rooted in ideologically-driven fears about oil and natural gas development, rather than on the environmental track record of past drilling and fracturing (fracking) operations, or the details of proposed applications.

Regulated Enough Already

Protest ability is not the only area in which Montana regulators up the ante for responsible development. Exploration and production activities are heavily regulated by state law and agency rules administered by the Montana Department of Environmental Quality (DEQ) and the BOGC

The BOGC is a quasi-judicial board comprised of members with a specific set of qualifications to best represent all interests in Montana. State law requires the makeup of the Board to include landowners, both with and without minerals, three members with industry experience, an attorney, and a member of the public at large. This makeup lends a unique perspective and a balanced approach to the regulation and oversight of oil and gas development.

In addition to managing oil and gas permitting, the BOGC has rulemaking authority, and responds to concerns of the public. During the height of controversy surrounding hydraulic fracturing (2011), the Board proactively adopted rules to further safeguard Montana’s most precious natural resources.

As the result of rules promulgated by the Board, oil and gas operators working in Montana must verify the integrity of their operations to withstand high-pressured, fracture stimulation for the protection of the environment, including groundwater, prior to receiving a permit to drill. Disclosure of chemical additives used in stimulation activities (hydraulic fracturing) must also be revealed to the Board and made publicly available. In the 2017 Legislature, disclosure requirements first established by the BOGC were further strengthened and put into law.

The Board has also expanded the notification rules ahead of drilling operations. Now, prior to drilling, companies must provide personalized notification to all owners of an occupied dwelling within a quarter mile of a proposed well, giving additional consideration to landowners without mineral rights. Companies have long been required to post a public notice in a major newspaper and a local paper in the area of proposed drilling, but are now required to contact nearby landowners directly.

The Last Word

Bearing in mind the challenges to continued exploration and production in Montana, the current regulatory framework, not independently regulated districts, works best by facilitating continuity in permitting and a predictable application of environmental regulation statewide; fundamental components of a competitive business climate.

The saying “death by a thousand cuts” rings true on the effect of unnecessary regulation on revenue generating industries. Rural states in particular risk essential out-of-state investment when public opinion alone drives policymaking.

By maintaining the status quo, Montana can continue a longstanding history of responsible environmental stewardship, alongside the necessary economic production of oil and natural gas.

 

Appeared in the Bakken Oil Business Journal April 3, 2018