The Montana Board of Oil and Gas Conservation (BOGC) is not serving the needs of the people of the state and is in need of substantive reform.

The current BOGC model may have worked better back in history when mineral extraction was the center of the Montana economy and, for the most part, oil and gas drilling occurred away from where people live.

But fracking has changed all that. It has brought heavy industry into landowners’ back yards, and it threatens not only their land, water and air, but also the rural way of life in Montana’s small towns, farms and ranches and the property rights of landowners.

Let’s look at how the BOGC works:

Purpose of the BOGC
The primary mission of the BOGC is threefold:

1. To prevent waste of oil & gas resources,
2. To conserve oil & gas by encouraging maximum efficient recovery of the resource, and
3. To protect the correlative rights of the mineral owners, i.e., the right of each owner to recover its fair share of the oil & gas underlying its lands.

That makes it pretty clear. The word “conservation” is not about conserving natural resources, but about conserving oil and gas, and protecting the rights of mineral holders.

Horizontal well, Richland County. Click to enlarge.

However, the board “also seeks to prevent oil and gas operations from harming nearby land or underground resources.” It does this in a number of ways, including “establishing spacing units, issuing drilling permits, administering bonds (required to guarantee the eventual proper plugging of wells and restoration of the surface), classifying wells, and adopting rules,” and regulating injection wells.

When a company wants to drill a well, the oil & gas operator has to apply for a permit , providing specific data about the company and other required information. BOGC staff performs a technical review of the proposal, which also goes through a public notice and hearing process. Then, the BOGC can issue, modify, or deny the permit; regulate the volume and characteristics of the fluids to be injected; and impose operational requirements or limitations for the well.

Now this is more encouraging. The BOGC process calls for public engagement, and then issuance of a permit that can be modified based on the individual characteristics of the well, the land on which it is being drilled, the proximity of water sources, how close it is to private dwellings, and so on.

However, you have to question the structure of a system in which the agency designed to protect mineral interests is also charged with protecting surface interests. The two are often in conflict, as we have learned in our discussion of split estates, and so the wisdom of charging one agency with both tasks has to be questioned.

Composition of the board
Part of the problem is way the board is structured. According to its rules, the board consists of seven members, as follows:

• Three members “shall be from the oil and gas industry, and have had at least 3 years’ experience in the production of oil and gas,”
• Two of the members shall be landowners from oil producing areas of the state but not actively associated with the oil and gas industry.
  • one of these two owns both mineral and surface rights, and
  • one of these two owns surface rights only
• Two at-large members, one of whom must be an attorney

All are appointed to four year terms by the governor. The first four are appointed when he/she takes office, and the other three are appointed two years later.

This structure is a problem. With three members coming from the oil and gas industry and one a mineral rights holder, you start with four votes from members who have a financial interest in the expansion of oil and gas drilling. If the governor is not careful in the appointment of the other three, there is a danger of a runaway board that acts only in the interest of the industry.

That is where we stand today.

Current board members
Current members, with city of residence, classification and date of term expiration:

Linda Nelson, Chair, BOGC

Industry representatives
Wayne Smith, Valier, Vice Chair, 1/1/17
Jack King, Billings, 1/1/15
John Evans, Butte, 1/1/17

Land owners
Linda Nelson, Chair (with minerals), Medicine Lake, 1/1/17
Bret Smelser (without minerals), Sidney, 1/1/15

Public members
Ronald Efta (attorney), Wibaux, 1/1/15
Peggy Nerud, Circle, 1/1/17

How it works in reality
Now let’s look at an actual well permit as an example of how this works in real life.

In October, 2013 Energy Corporation of America CEO John Mork announced in Billings that his company planned to drill 50 wells along the Beartooth Front in Carbon and Stillwater Counties. He said that hydraulic fracturing technology made this drilling economically feasible.

The company filed a permit for its first exploratory well, in Belfry, and a public hearing was scheduled for December 10 at the BOGC offices in Billings.

According to the Billings Gazette, Northern Plains Resource Council members had hand-delivered, mailed and faxed notices of a protest to the permit “weeks in advance” of the hearing.

But the hearing was cancelled after the board’s attorney said that Carbon County Resource Council members had failed to file the final document, a “service list,” an official list of the parties they had served.

Bret Smelser

So, their board hearing was canceled and the permit was granted without a hearing by the board’s administrator.

Community members were particularly angered by board member Bret Smelser, who lectured them in what they felt was an arrogant way about the importance of oil and gas drilling to the state’s economy, and, as one community member reported, the need to “put up with a few inconveniences” to support US energy independence.

It’s worth pointing out that Smelser’s family business, Border Steel and Recycling, has thrived during the Bakken oil boom, expanding to to include three Montana locations in Glendive, Sidney and Plentywood plus one in Williston, ND. And that one of the “inconveniences” Smelser is willing to put up with was a non-functional sewage system caused by illegal waste dumping in Sidney, where Smelser was mayor at the time.

Lawsuit filed
Northern Plains Resource Council and Carbon County Resource Council quickly filed suit demanding the permit be revoked and a hearing held.

Charles Sangmeister Chair of the Stillwater Protective Association observed that, “This oil well is the beginning of what ECA says could be a large development in Carbon and Stillwater counties. We have many members whose lives and property will be directly affected by both this well and the others along the Beartooth Front and Bighorn Basin. That’s why we couldn’t stand for the BOGC to simply keep the public from testifying on this permit.”

We documented the concern about the introduction of fracking onto the Beartooth Front in this post, which looks in detail at how the local community would be impacted by the permitted well.

Bonnie Martinell, an organic farmer who lives near the well, spoke at the hearing

Public hearing
At the public hearing, several members of the public spoke and asked the board to acknowledge the environmental risks of using hydraulic fracking at the well site, where groundwater was positioned both above and below the shale belt through which ECA intends to drill. Witnesses also asked the board to consider the road dust and soil erosion. They asked that area water be tested throughout the project’s lifespan to assure the water supply wasn’t fouled.

Licensed geologist Mark Quarles provided expert testimony at the hearing. He presented several concerns with the permit as requested:

• There is no stated plan for hydraulic fracturing, yet it is expected. Since there are many environmental risks associated with fracking, and because this well is located in a populated area, it makes sense to ask the permit to be modified to include a hydraulic fracturing plan. Such a plan should include such information as fracturing fluid makeup, source water options for millions of gallons of water, disposal plans to fracturing liquids and flowback, and use of production and associated waste pits.
• Use of pits is antiquated, is not needed, and presents substantial risks. The BOGC should require that ECA use a closed loop system does not include a reserve pit or on-site evaporation and disposal of wastes. Further, calculations should be included to demonstrate that any in ground waste storage pits, if used, are designed to meet all emergency rainfall and snowmelt volumes, in addition to anticipated maximum waste volumes for the proposed vertical well and the horizontal well. Solid wastes should not be allowed to remain in the pits permanently because of the porous soils, shallow groundwater and widespread use of irrigation water that will still be used to grow crops.
• There is no plan for management of exploration and production (E&P) waste associated with the well. The BOGC should require an amended Application for Permit to describe the plan for proper management of all of these associated E&P wastes and require closed loop systems.
• Groundwater risks are not fully defined. The application misidentifies the locations and distance of water wells from the drilling site. There needs to be a new groundwater use map that illustrates the horizontal well component, and identifies all wells within a one-mile radius of any portion of the vertical and horizontal component, as well as any regional aquifers that might exist, and any springs.
  
• ECA has a recent history of non-compliance drilling in Pennsylvania and West Virginia. This is something that has been well documented on this site, and is easily available in the public record. In Pennsylvania, ECA has been cited in 66 inspections, with 90 separate violations, and 55 enforcement actions. The violations have been for pit failures, methane migration from failed seals, unpermitted discharges to surface water, stream crossings without a permit, erosional control deficiencies, operational deficiencies, and failure to properly close sites.

The consultant made a number of recommendations for changes in design of the well, for industry best practices to be followed in well design, and for the use of more advanced technology than was being proposed at the site.

What the BOGC did
As you read through the public and expert testimony, you can see that these are real property owners who have legitimate concerns and are asking for help from the state. They’re not trying to stop drilling; they’re trying to preserve their property, their water supplies, and their ability to make a living. They’re asking the BOGC to take action to protect Montana citizens, as they are empowered to do.

So what did the BOGC do? Well, they completely ignored all the public and expert input, and went ahead and approved the permit as submitted, without any discussion, by a 6-1 vote, with Peggy Nerud dissenting.

Tom Richmond, BOGC administrator at the time, said there was nothing exceptional about the Belfry well. “The ECA permit proposes drilling a wildcat well, much like the other 35,000 wildcat wells drilled in Montana that have produced oil and gas over the years,” Richmond said.

“There’s nothing special with what’s proposed here that would require special conditions or stipulations.”

What Richmond didn’t say is that, according to Montana regulations adopted in 2011, when ECA decides to fracture the well, which their CEO publicly announced they planned to do and which the expert testimony said is certain, they need to provide notification to the BOGC only 48 hours in advance, with no public notification required.

In other words, the BOGC treated this like any other well permit, knowing that public concerns about hydraulic fracturing are legitimate and that fracking is certain to occur.

Members of the public later called the experience “exasperating.” The BOGC board didn’t even make a show of honoring public input. The body language of the members, which included walking out during testimony, turning away from the presenters and eye rolling, was exaggerated and offensive.

What’s wrong with the Montana Board of Oil and Gas Conservation
What’s wrong with the BOGC is that it is the fox guarding the henhouse. The board cannot serve two conflicting interests. Its primary mission to maximize the profits of the oil and gas industry and mineral rights holders. If it does that, the interests of surface rights holders to protect their property values and conserve water cannot be supported.

The BOGC does not have the resources to protect the safety of citizens of Montana even if it had the inclination. Right now the BOGC has only seven inspectors for the entire state — two in Billings, two in Shelby, and one each in Miles City, Sidney and Plentywood. According to the a study done by the Western Organization of Resource Councils (WORC), this number has grown by only one inspector since 1999. while the number of active wells in Montana has grown by 54% during that time.

Enforcement is also a problem. While the number of violations issued by Montana state inspectors more than doubled from 2004-2011, there’s no teeth in it. According to the WORC study, there were only 26 fines issued in the state over the four-year period from 2007-2010, with total fines issued of $18,950 over those four years.

By comparison, keep in mind that ECA alone received 90 citations in Pennsylvania with fines over $80,000.

The BOGC is in desperate need of reform to protect Montana citizens from runaway oil and gas development.

Reform would need to start with changing the composition of this state agency. It is just bad government to have industry representatives on a state board, and to have them represent 43% of the total votes! This truly is the fox guarding the henhouse. A government agency should not be run by the industry it is charged with regulating. A seven-member board should balance pro-business interests with pro-community and environmental interests.

A reformed BOGC would also be accountable to the public for hearings, record keeping and communication. Right now the BOGC web site is pathetic. There is little information there beyond an annual report for the year 2012. Like Pennsylvania and West Virginia, there should be a searchable database of all wells, inspections, violations, and penalties. The public should not have to sue to get a hearing on a well that will have a dramatic impact on a local community.

It’s time for Montana to grow up. The current oil boom has transformed the eastern part of the state, and it’s not a pretty picture. Now the industry is knocking on the door in southern Montana, the Bighorn Basin, and undoubtedly other areas. The state has left communities to fend for themselves against an industry with unlimited resources that controls the permitting, inspection and enforcement of standards through the BOGC.

What should local communities do?
It’s time for local community government to wake up. The BLM and BOGC quite simply are not going to protect Montana’s citizens and way of life. We have seen local governments make thecommon mistake of expecting someone else to protect them all over the country — in Pennsylvania, West Virginia, Texas, Colorado, Wyoming, North Dakota and other parts of Montana. Our watersheds are fragile. Contamination could be disastrous.

Montanans are understandably wary of government getting unnecessarily involved in their lives. But this a case of needing local government to take action to protect local water and landholder rights.

The BOGC needs complete reform, but this is going to take a long time. Local communities need to understand that there is a serial polluter on our doorstep, and nobody in Washington or Helena or Billings is looking out for us. If we want to protect ourselves, local government agencies need to act now. It’s the only way to protect our rights, our water and our way of life.