This report is part of a joint project by the Center for Public Integrity and InsideClimate News.
BISMARCK, N.D.— North Dakota's Heritage Center makes for a jarring sight in this Midwestern prairie capital. The newly-expanded museum consists of four interlocking cubes of stone, steel and glass, a gleaming architectural statement poking out of the otherwise drab Capitol grounds. Each cube features a gallery devoted to an era of North Dakota’s history, but the state’s present is everywhere.
The legislature approved the dramatic $52 million expansion in 2009, but required the museum to come up with $12 million of that to supplement state money, and more than half has come from energy companies—including a $1.8 million gift from Continental Resources Inc. that put its name on one of the galleries. The gifts have "given us a chance to do some things that we've never really had a chance to do," said Merl Paaverud, director of the State Historical Society.
Oil development has transformed this state to the point where it's hard to find a place or person that hasn't been touched by the boom. Energy companies have drilled more than 8,000 wells into western North Dakota's rugged prairie since the beginning of 2010, quadrupling the state's oil production. From July 2011 through June 2013, the state collected $4 billion in oil taxes, and is expecting a $1 billion surplus for the current biennium, not including an oil-funded sovereign wealth fund that will approach a balance of $3 billion. North Dakota is in the uncommon position of facing a labor shortage, spurring a state-run campaign to attract workers, paid for in part by Hess Corp.
In addition to the tax revenue they've brought, the oil companies have showered the state with additional money—new millions for universities, museums, hospitals and other charitable causes. They've also given hundreds of thousands to politicians, making the sector the largest single source of those contributions. The oil industry is the top contributor to Gov. Jack Dalrymple, according to the National Institute on Money in State Politics, and gave money in all but 10 of the 75 legislative races held in 2012.
"I don't think most people know how pervasive the influence of the oil industry is in the Capitol," said Jim Fuglie, a former state tourism director and former head of the state Democratic-Nonpartisan League Party. "Nothing this big has happened since homestead days. This is a game changer for North Dakota."
Put another way, the state's modern history has been rewritten by the energy industry in just four short years. And while few want to argue with the prosperity—the cascading cash, the budget surplus, the new hospital wing, the abundant jobs—the clout and swagger of the oil companies, arguably the most powerful force in modern politics, has unsettled the traditionally amicable and moderate politics of this state of just 725,000 people. Whether through campaign cash, charitable donations or larger contributions to the economy, the industry has gained a level of influence that's hard to overstate. Each significant attempt to tighten regulatory oversight or restrict some of the industry's more wasteful practices in the last legislative session either failed or passed only after being stripped of its core. Any talk about clamping down on the pace of drilling has been quickly snuffed out.
The results have been making headlines for a couple of years now: oil field spills by the thousands, billowing clouds of dust kicked up by an endless stream of trucks pounding on deteriorating roads, radioactive waste left to degrade in vacant buildings, skyrocketing crime rates and housing costs and methamphetamine abuse and prostitutes in a land where few outsiders wished to venture just a few years back. Many landowners and local officials in the state's western oil fields—political conservatives for the most part—see an industry allowed to operate where and when it pleases, at any given speed, and to pollute with virtual impunity. Drillers wastefully burn off nearly a third of the natural gas that’s produced with the oil without paying royalties or taxes because they haven’t installed the pipelines and processing plants to capture it. As recently as 2009, there were just 451 oil field spills statewide, but last year there were at least 1,782. Just a fraction result in punishment: authorities issued 15 fines for spills in 2013, mostly for incidents from previous years.
State officials caution that aggressive regulation would slow development and jeopardize, well, everything. They also highlight a handful of recently adopted rules, part of an effort to adjust an antiquated regulatory system to the modern technologies and massive scale of the oil industry. The state has indeed adopted many new regulations to cover drilling, but just who wrote them and how much difference they’ll make is up for debate. The Industrial Commission, which oversees drilling, recently announced a set of rules to limit flaring, the practice of burning natural gas at the well site. The rules should start reducing the amount of gas drillers waste, but they are based on a set of proposals that regulators solicited from the oil companies themselves.
Since retiring five years ago, Fuglie, the former tourism director, has maintained a political blog, and he characterizes state leaders as so giddy with new riches that they've ignored the boom's destructive effects.
"We've been so poor for so long, then all of a sudden, we won the goddamn lottery," he said. "You know what happens to lottery winners who aren't prepared to spend a lot of money. You read about them three years later. They're in court, or they're in bankruptcy, or they’re divorced, or their kids committed murder or took drugs. That's the way we are."
Don Morrison is one of North Dakota's most prominent environmentalists, but he's hardly a treehugger. He is the executive director of the Dakota Resource Council, a grassroots group of mostly farmers and ranchers that tries to protect land for its members, many of whom have leased mineral rights to energy companies and are supportive of drilling as long as it's done responsibly. Unlike in other states, there's been no organized movement here to fight hydraulic fracturing, or fracking, the high pressure injection of water, chemicals and sand into the earth to shatter the rock and release oil and gas. Towns here have not tried to ban the practice, as they have in Colorado, Pennsylvania and even Texas. Residents are largely supportive of the oil industry—an industry-sponsored poll found that 83 percent of respondents support oil development. Advocates like Morrison have mostly asked for smaller-bore measures—increasing the distance between homes and wells or tightening the rules on flaring—but even these proposals have sometimes drawn strident reactions from politicians.
In December, Attorney General Wayne Stenehjem, a Republican who sits on the three-member Industrial Commission, proposed placing buffer zones of up to two miles around 18 "extraordinary" sites—scenic buttes and state or national parks—within which any proposals to drill would undergo a public comment period for individuals or public agencies to weigh in on details of the development.
Backers noted that the proposal did not ban drilling anywhere, but would merely solicit public input to help mitigate impacts. But opponents of the proposal attacked. State Rep. Roscoe Streyle, a Republican from Minot, which is not in the oil fields, wrote a commentary for the Bismarck Tribune in which he called the proposal "a direct attack against the free market capitalist system and...very anti-oil development," before going on to write that the state "should be thanking the industry every day and working with it, not against it." Harold Hamm, CEO of Continental Resources, warned that the company's commitment to the state depended on the outcome of the proposal. In comments submitted to the Industrial Commission, the North Dakota Petroleum Council, the industry's lobbying group, said the process could allow "radical environmentalists...to delay or obstruct development." The council asked that the commission "further define" the comment process on public lands and remove it altogether from private property. In March, the commission did pretty much exactly that, approving a comment process only for public lands, covering about 600,000 acres, or half the original area.
After the vote, Stenehjem mentioned that he had recently seen the movie Gravity, in which the main character spends most of the film stranded in space, alone. “Now I know how Sandra Bullock felt,” he said.
Clay Jenkinson, a columnist for The Bismarck Tribune, wrote that he was "deeply saddened to see the Industrial Commission throw its immense weight (as usual) behind the dynamics of wholesale development." The following month, in comments to a local chamber of commerce, Lt. Gov. Drew Wrigley reportedly mocked Jenkinson’s critiques, saying, "You don’t have a God-given right to never see a well head going up and down."
In an interview, Wrigley said he's a friend of Jenkinson’s and that his comments were taken out of context. "I was joking," he said. "It wasn't a serious pointed comment at Clay."
The rhetoric around the "extraordinary places" proposal contributed to an atmosphere in which dissent is discouraged, Morrison said, an uncharacteristic mood for a state that has long maintained an odd mix of conservative and progressive politics. "There is a set line that everybody has to toe, which is the oil companies are the ticket to the future and don’t say anything bad about them." Morrison is thin and bald, with black rimmed glasses and a neatly trimmed white mustache, and he has a tendency to giggle when he gets excited. "Our state leaders set up a conversation that, it was all or nothing. There was absolutely no room for anyone in the middle, none. And that was just weird."
Morrison was speaking from his office on the basement floor of a small brick building on the western edge of Bismarck, above the Missouri River. On the wall of the waiting room hung a framed drawing of Theodore Roosevelt's face with a quote: "Here is your country. Cherish these natural wonders, cherish the natural resources, cherish the history and romance as a sacred heritage, for your children and your children's children. Do not let selfish men or greedy interests skin your country of its beauty, its riches or its romance."
Roosevelt lived his ranching days in western North Dakota, in an area now surrounded by oil activity, and many of the area’s residents embody his conservationist spirit, even while maintaining mostly conservative political views. Corporate interests have long held sway in the state, but there's also a populist tradition dating back to the 19th century (North Dakota has the only state-run bank in the country) that seems to have waned in recent years.
In the mid 1970s, at the height of a coal mining boom that tripled the state's production, then-Gov. Art Link, a Democrat, pushed through a set of extraction taxes and tough reclamation laws to cover coal production. Morrison, who was working for the lieutenant governor at the time, said there was robust debate about how best to exploit the resources, but that nothing of the sort was tolerated in recent years. "If any politician dared to say, well maybe we should make the oil companies do such and such, he was immediately branded as a radical and weirdo, and not a legitimate part of the conversation."
A Political Force
Since the drilling boom began about five years ago, oil and gas companies have grown into the most potent force in state politics. In 2012, the industry gave at least $495,000 to political candidates. That may not sound like much, but candidates for the North Dakota House raised an average of about $4,500 that year, and it comprises more than 8 percent of all contributions to candidates, more than any other sector gave, according to an analysis of data collected by the National Institute on Money in State Politics. As recently as 2008, the industry gave about $200,000. The vast majority of that money, 95 percent in 2012, has gone to Republicans, and it's helped the party stretch its traditional hold on the legislature to a two-thirds majority in both houses.
North Dakota's 36th Legislative District, which surrounds Dickinson, attracted some of the most money of any race in 2012. Each district has two representatives and one senator, and the three candidates from each party often run together, effectively as one slate. A retiring GOP senator left an open seat. The Republicans turned to Kelly Armstrong, son of local oilman Mike Armstrong, and he raised a total of $20,750, the third most of any Senate candidate, with $17,500 of that coming from oil company PACs or people tied to the drilling. Of that, $4,000 came from his father, and $10,000 came from Thomas and John Jordan, a father and son who live in California. Thomas, who is retired, started Jordan Winery and also Jordan Oil and Gas, which has partnered with the elder Armstrong’s company. John Jordan now runs the winery and said he has no stake in his father’s oil company but does own a share in two wells operated by Mike Armstrong. He is also one of the most prolific super-PAC donors in the country over the past couple of years, but said he and his father contributed to Armstrong’s campaign because they have been friends for decades.
All together, the three Republican candidates in the district raised more money from oil interests, $20,000, than the Democrats did from all donors combined, $19,900—and the GOP swept the district by historic margins. "We were pretty much outgunned," said Richard Brauhn, the Democratic Senate candidate, who raised $1,975 and mustered just 25 percent of the vote.
Armstrong did not respond to messages left at his office and on his cell phone.
But the biggest money by far went into the 2012 gubernatorial race. Jack Dalrymple raised at least $370,000 from oil interests, more than 10 percent of the total $3.6 million he raised, making the sector the largest contributor to his campaign, according to a Center analysis of data collected by the National Institute on Money in Politics. Democratic candidate Ryan Taylor did not receive any identifiable oil and gas money, and raised a total of just $650,000. Last year, Dalrymple, who is not up for reelection until 2016, raised $27,775 from the industry, 45 percent of all the money his campaign took in.
By contrast, environmental groups gave nothing to state candidates in 2012, according to the National Institute on Money in State Politics. The only contribution classified as pro-environmental policy is $500 to Ryan Taylor's campaign from an Eileen Brady, of Portland, Oregon, who could not be reached for this article.
Fuglie, the retired Democratic tourism director, said the money that oil companies have poured into politics in recent years is "almost unheard of" in North Dakota, where running a campaign is far cheaper than in other parts of the country. "Half a million dollars in contributions has a huge impact on the outcome of the election, and the industry knows that," he said, speaking in particular of the disparity in the gubernatorial race. "What the industry did was they went and bought themselves a friend."
A Damn Good Relationship
In North Dakota, the gubernatorial contributions raise a particular concern for some not just because of their scale, but because the governor chairs the three-member Industrial Commission, which makes the ultimate decision on all regulatory matters. In 2011, for example, Dalrymple received $1,000 from ConocoPhillips as the commission was considering an application by the company to pool several of its leases, a move the company said would mitigate impacts but which several landowners opposed. The commission eventually approved the application (Democrats fought unsuccessfully to have a grand jury examine the case).
The other members are the attorney general, currently Stenehjem, and the state's agriculture commissioner, Republican Doug Goehring. In his last election, in 2010, Stenehjem raised at least $12,000 from oil interests, more than from any other sector except the Republican State Leadership Committee, a national group. In the same election, Goehring raised at least $22,000 from oil interests, second only to the agricultural sector.
Dalrymple was not available for an interview for this article, but in response to questions, he did supply a written statement, saying his administration listens "to the needs of all North Dakota citizens and businesses," and that "providing a responsive state government is by no means an open door to undue influence." He also said the Industrial Commission has adopted "some of the state's most stringent regulations," including prohibiting drillers from storing liquid waste in open pits for most wells and increasing the bond companies must purchase as collateral on each well from $20,000 to $50,000. He did not respond to a question asking about the potential for conflicts of interest in accepting contributions from companies with applications before the Industrial Commission but said the ConocoPhillips approval helped protect a state park.
A review of any of the major regulatory questions before the legislature last session, however, suggests that state government tended to be more responsive to the appeals by the oil industry than by landowners out west who wanted stricter regulation.
Last session, a constituent convinced Sen. Bill Bowman, a Republican representing the oil fields region, to introduce a bill increasing the minimum distance allowed between wells and homes, from 500 feet to 1,000 for sites with multiple wells, and 750 feet for single wells. Morrison’s group, along with a second landowner group, was among the bill's chief supporters. At the committee hearing, four landowners came to testify in favor of the bill, saying it would help reduce risks to their health from flares and other equipment that emit hazardous pollutants, and would protect them in the event of an accident. The director of the state Grain Growers Association spoke in favor, and, in a House hearing on a parallel bill days later, so did a representative of the North Dakota Farmers Union and several other landowners, who presented a petition with 415 signatures.
But Ron Ness, head of the North Dakota Petroleum Council and the industry's chief lobbyist, told lawmakers that the move would force companies to disturb more land when they drilled and would cause more conflicts with landowners. Lynn D. Helms, the director of the Department of Mineral Resources, the agency under the Industrial Commission that actually carries out regulation, testified neutrally but said there was no science to support increasing the distance and that doing so could lead to less orderly development. The Senate bill died after the hearing, and the House version survived only after landowners, in a last-ditch effort to achieve what they could, introduced an amendment that essentially gutted the bill: it left the minimum distance the same, but said that for wells within 1,000 feet of a home, if a landowner requests, regulators may require oil companies put flares or other equipment on the far side of the well, rather than between the well and a home. The governor later signed the amended version.
Lobbyists turned out in droves, several lawmakers said. Oil and pipeline companies hired 27 lobbyists that session, compared to 23 for conservationist groups. But nearly everyone interviewed for this article said the only one that really matters is Ness, who has, in the words of Senate Majority Leader Rich Wardner, "a damn good relationship with the Legislature."
In an interview, Ness said his industry does not always get its way, but has provided thousands of jobs and helped revive the state. "We have been searching for decades for a renaissance of rural America," he said, trying but failing to keep people in the state’s farmland, until now.
But for the farmers and ranchers who testified, the Bowman bill was just another defeat. Brenda Jorgenson, a Dakota Resource Council member who lives near White Earth, on the northeastern edge of the drilling, was among them. She's battled with state regulators and drillers for years over development near her home, which she says has led her to develop rashes and neurological problems. "The burden of proof is all on us, the landowners," she said. "Everything is on us."
North Dakota's Meal Ticket
Sen. Wardner sees a different picture. Sitting in a Perkins Restaurant in his home town of Dickinson, on the southern edge of the drilling, Wardner displayed a binder full of colored charts and graphs showing exactly where $5.3 billion in estimated oil tax revenue is going for the two-year period that began July 2013: $342 million in property tax relief, $682 million to infrastructure, $586 million back to cities and counties in the oil fields, $564 million to two school trust funds. “We’re able to take care of needs now,” he said.
Last session, Wardner, a Republican, backed a bill that would have cut the 11.5 percent oil tax by two points, something the industry has been pushing for years. The measure passed the Senate but died in the House after Democrats generated public outrage by characterizing the move as a reckless squandering of revenue (people from all sides point to the bill’s failure as the only major defeat the industry has suffered in recent years). Wardner said the tax cut was intended to encourage the industry to stick around. Fresh in everyone’s minds is the last oil boom, in the early 1980s, which quickly went bust, leaving state finances in shambles. The state hiked the oil tax by 6.5 percentage points, to its current rate, at the start of that boom in 1980, and Wardner and others cite the move as reason to cut it now.
The recent tax cut push began in 2011, when former Gov. Ed Schafer, a Republican, toured the state holding town hall style meetings calling for the change. At first, it wasn't clear who was paying for the tour, which was organized by a nonprofit called Invest in North Dakota. But tax filings show that $300,000 came from a conservative, Iowa-based nonprofit called American Future Fund, a prominent player in national politics. The organization is not required to disclose its donors, but previous reporting has shown it’s accepted millions of dollars from conservative groups and individuals and was one the most effective outside spending groups of the 2010 election cycle. Later in 2011, Continental Resources appointed Schafer to its board of directors, a position he still holds, and the company has awarded him with more than $1.1 million in cash and stock since.
In an interview, Schafer said he was not involved in fundraising for the group, but that it drew on wide support from the oil industry and other companies and individuals. He pointed out that the state’s oil taxes are among the highest in the country and that a lower rate would help North Dakota retain investment.
Oil and gas companies have given tens of millions of dollars in charitable contributions in the state over the past few years, focusing in particular on education. In 2011, Hess Corp. gave $25 million to launch a new state program to help high school students prepare for college. John Hess, the company’s chairman and CEO, is an honorary co-chair of the steering committee, along with the governor. In June, the University of North Dakota announced a $5 million gift from the company that will pay for three new high-tech laboratories at its College of Engineering and Mines, with each lab sporting Hess’s name. Right next door is the university’s Harold Hamm School of Geology and Geological Engineering, a renaming of its geology department announced in 2012 after Continental and Hamm, the company’s CEO, donated $10 million to the school.
That same year, Dalrymple appointed Kathleen Neset to the state’s Board of Higher Education, which oversees the university system. Neset runs an oil field consulting business that, among other work, hosted this summer’s One Million Barrel Celebration, an event organized by the Petroleum Council, the industry group, to mark a milestone in the growth of the state’s oil production. In May, Neset brought her colleagues at the education board (none of whom are in the oil business) on an oil field tour, where the university’s chancellor told reporters he wants to be more responsive to the industry, saying, "Higher education is absolutely vital to the development of this industry." In June, the Petroleum Council hosted its annual Teacher Education Program, four days of classes and tours for primary and secondary school teachers. A 2009 Petroleum Council report on the event noted the importance of educating tomorrow’s workforce and of influencing the state’s "future leaders [who] might translate their knowledge into a positive public opinion of the industry and ultimately effectuate favorable public policy towards the industry."
There’s little doubt the gifts will improve and expand education for many North Dakotans. John Roper, a Hess spokesman, noted that his company has been working in North Dakota since the 1950s. "It's important for us to support the state," he said. Jack Ekstrom, a spokesman for Whiting Petroleum, which has given at least $100,000 to the University of North Dakota’s foundation, said the contributions are a way for the company to support its employees in the state.
But some critics of government's relationship with the business are concerned that the flood of industry money has stifled debate. Sebastian Braun is the chair of the Department of American Indian Studies at the University of North Dakota, in Grand Forks, and he's been trying for years to team up with scientists at the university to measure air and water quality as part of his research on the effects the drilling.
"Pretty much every time I talked to someone the answer would be, 'That would be interesting, but I don't want to do it, because someone might disagree,'" he said. Braun has never experienced direct pressure to avoid researching a topic, and he doesn't think industry money has bought direct control over research. But it has bought a mood, he said, in which none of his colleagues are willing to rock the boat.
Peter Johnson, a spokesman for the university, said industry gifts do not buy influence and that there’s no pressure to avoid topics that may be viewed as critical of the oil development, pointing to two faculty projects looking into social impacts of the drilling, including Braun’s work.
Wardner doesn't deny the oil industry's influence in the state's corridors of power. "They get the benefit of the doubt, absolutely," he said. But he argues that's for good reason. Wardner was a school administrator in the ’80s and ’90s, and he described watching colleagues get laid off at Dickinson High School as residents fled the area and funding was slashed. He also led the local chamber of commerce for eight years until 2006, where they would celebrate if they added two or three jobs in town. "You gotta understand that before they came, we're grasping for ways to keep this town alive. Sixteen thousand and dying. Now, it's almost 30,000," he said. "Most people would rather have this growing, with a vibrant economy, and they know who's responsible. The oil is."
All Roads Lead to Oil
There are only four roads into the western oil fields, and one of them, Highway 22, heads straight north from Dickinson. Almost immediately, trucks begin to dominate the traffic. Warehouses line the road, labeled with the logos of oil field giants like National Oilwell Varco and Marathon Petroleum. Wells appear. Pretty soon, nearly every vehicle is connected to the drilling—most of them semi-trucks—and a well or drilling rig is always within sight. The farther in you get, the more Wardner's vibrant economy becomes an all-encompassing notion.
Some of the most intensive drilling activity is centered around New Town, which sits within the boundaries of the Fort Berthold Indian Reservation and also in the district of state Rep. Kenton Onstad, the Democratic House minority leader. On a bright June day, Onstad was driving a white Chevy Silverado down a gravel section-line road—the land here is divided into a grid of 640 acre sections—lined with well after well, one every few hundred feet for a mile. Down another road, he pointed out a well that he said had been drilled in a flood zone, just a couple of hundred feet from a creek that ran directly into Lake Sakakawea, a dammed stretch of the Missouri River that provides drinking water and irrigation to much of the state. The Department of Mineral Resources has essentially rubber-stamped drilling permits as they come in, he said, ignoring whether they're in environmentally sensitive areas or whether roads could handle the traffic.
Residents of Ross, about 30 miles north of New Town, awoke one day last year to find Oasis Petroleum hauling drilling waste to a giant pit located near the town's municipal water well. A Department of Mineral Resources field inspector had approved the site even though it was in a protected area, within which any industrial development that could contaminate the water is restricted, a fact the inspector could have discovered by checking a publicly available map on the state Health Department website.
"This is readily available to the general public. Why wasn't this used as part of the permitting process?" said Wade Enget, state's attorney for Mountrail County, which includes Ross. "They didn't really have an answer for that."
After county officials alerted the department of the mistake, Oasis stopped hauling waste to the site and eventually closed the pit. Helms, the chief regulator, met with town leaders and told them it was an oversight, local media reported. In an emailed response to questions, Department of Mineral Resources spokeswoman Alison Ritter said the pit was originally approved for another location but was moved after an inspector found shallow groundwater at the first site. Ritter said it was a mistake that field staff did not have access to the mapping data, one they have since corrected.
But it’s cases like these that worry Onstad. "It isn't that we're going to prevent a disaster," he said, it's just a question of when it will happen. "We were open for business, boy."
Helms, the chief regulator, defends his agency’s overall approach. "We look at all of the impacts of that drilling and where it’s going to be placed," he said in an interview. "We have developed a system where we do look at the impact to the road, to the railroad crossings, to water resources, to farmland, to pastureland."
Many of the struggles seem minor. Companies will regularly upgrade dirt roads on their own to handle the traffic, but then townships or county governments become responsible to maintain them, and they don’t necessarily have the funds to do so. Well sites often leave patches of farmland between the well and the road that are too small for farming equipment, and farmers have to negotiate payments for the land, which they can't farm for the decades-long life of the well but still have to pay taxes on.
Gary Satterthwaite, a 70-year-old retired rancher, lives about 12 miles north of New Town, where he owns some 3,500 acres, which he now rents out. Only a small percentage of the land is good enough to farm—the rest used for grazing—but the family has long had a lease with Whiting Petroleum, and in in 2012, the company informed him they were going to place a new well smack in the middle of one of his good farming fields. Even though it covered just a portion of the field, the well effectively took the whole area out of production, he said. "They left us 100 yards on one end and 300 yards on the other. It’s a very narrow field, and they just basically cut it into small pieces where it’s not economical to farm." Satterthwaite owns a share in a family trust that controls the oil underneath his land, and so he receives royalties from the well. He also negotiated what he called "fair market value at this time," for the loss of the field. But he feels like the drilling is taking from him his farm and his livelihood. He asked the company to move the well a few hundred feet, he said, with no luck. "The oil companies are in charge."
In an email, Ekstrom, the Whiting spokesman, said the company doesn't comment on private contractual transactions.
Many residents also complain that regulators are reluctant to issue fines. While the Department of Mineral Resources oversees drilling, the Health Department enforces the state's environmental laws, so the two agencies effectively share oversight duties. Last year Mineral Resources issued eight fines and the Health Department issued 38, though all but 10 of those were part of a larger agreement on air emissions with the industry and not for individual incidents.
That is a significant jump from 2009, before the boom began. That year, the Health Department issued just one oil field fine and the Department of Mineral Resources issued three.
But over the same period, the rate of drilling has more than quadrupled, with 2,254 wells drilled last year. Regulators say they have ramped up enforcement to keep pace with the drilling, but critics argue that the baseline was already unacceptably low, noting that fewer than 1 percent of spills result in fines.
When regulators do issue fines, companies often negotiate them down to a fraction of the original amount. In August of last year, Continental Resources was fracking a well when an accident allowed oil, gas and fluids to spew out of the ground for three days, according to a Department of Mineral Resources complaint issued in October. The department sought a $75,000 fine for the incident, but Continental fought back, denying the allegations. In December, the parties took the case before an administrative law judge. On March 14, the department and Continental reached an agreement saying that the violations were unintentional. Continental paid a $7,500 fine, with the rest waived as long as the company didn’t commit a similar violation for a year, and purchased a $20,000 bond to guarantee it completed a cleanup of the site.
Helms said these agreements allow the department to settle cases quickly and ensure that companies do not repeat violations. In the vast majority of cases, he said, verbal or written notices are enough to get a company to clean a spill or fix a problem on its own, and no fine is necessary. "It's that last remaining one percent or so where the person clearly doesn't have any respect for our laws or rules, and we will issue a complaint."
In an effort to keep pace with the drilling, the state has nearly doubled the Department of Mineral Resources’ budget since 2009 to $22.7 million this biennium. It's added 37 staff members over that period, a 66 percent increase, with 30 field inspectors now compared to 12 in 2009. Over the same period, the number of wells in operation has increased by roughly 150 percent, to 10,892.
The Health Department's environmental health section has not fared as well. Its budget has barely budged since 2009, up $2 million to $50.5 million for the two-year period beginning in July 2013 (most of the department’s funding comes from the federal government, however, and the state’s share has actually doubled). The increase has allowed the department to hire eight new staff, a 5 percent increase, two fewer than the department requested. The workload has increased "significantly more" than that, said Dave Glatt, the head of the Health Department's environmental health section. "You just dedicate the staff to the core areas with the highest priority," he said.
Glatt said his staff focuses on getting companies compliant, rather than on fines, but that they’re beginning to realize they may need to come down harder. "It's an evolving process," he said. "I don't think we're there yet, but I think we're getting close."
While even Majority Leader Wardner acknowledges that state regulators should perhaps issue more—and more significant—fines, Democrats have been sharper in their critique, which they generally aim at elected officials rather than bureaucrats. State Sen. Connie Triplett pointed to a recent case in which the Public Service Commission, which has jurisdiction over pipelines and is made up of three elected commissioners, decided not to fine Hiland Operating, a pipeline company chaired by Harold Hamm, after discovering it had been operating a pipeline in the state for two years without a permit. Randy Christmann, one of the commissioners, who received $1,000 in campaign contributions from Hamm in 2012, said at the time that the commission didn’t want to discourage investment.
"The companies know there isn’t much risk with making mistakes in North Dakota," said Triplett.
Nearly three years ago, a picture began circulating on the Internet showing a satellite image of the middle of the country. The photograph, taken at night, showed what looked like a sprawling megalopolis glowing in western North Dakota. The lights were flares of natural gas, many of which burn for months or years. The fossil-fuel rich rock formation that energy companies are tapping, known as the Bakken, holds both oil and gas, and there’s no way to extract one without the other. But while oil can be trucked away from a well site, gas requires pipelines and processing plants, and North Dakota has few of either. Because the oil is worth much more than the gas, and because energy companies have been racing to drill before their five-year leases with mineral owners expire, the drillers stand to make more money drilling as fast as they can even if they're wasting gas they might otherwise sell. The gas they burned off in 2012 was worth about $1 billion, according to a report by Ceres, an advocacy group that pushes for sustainable investing, and released the greenhouse gas equivalent of one million cars. Flares also emit noxious pollutants including benzene, a known carcinogen.
North Dakota addresses flaring in two ways: administrative rules restrict flaring on a field by field basis—generally by limiting production if companies flare for more than 60 days—while state law allows companies to flare for up to a year without paying royalties or taxes. Those limits are much less stringent than in other states—even oil-friendly Texas allows for just 10 days—but the Department of Mineral Resources has issued countless waivers to the rules, Ritter said, allowing companies to continue flaring because they demonstrated that capturing the gas was not economically feasible. Ritter said comparing North Dakota to other states is unfair. For one thing, drillers in North Dakota were looking for oil, not gas, and Texas has many gas fields and, therefore, a large infrastructure prepared to handle extra gas from oil wells. Officials also point to North Dakota’s harsh climate as a limitation, noting that companies can dig for pipelines for barely half the year.
The waste has caused increasing consternation among many people in North Dakota and across the country, though, including Robert Harms, who at first seems like an unlikely candidate for agitator. Harms is the chairman of the North Dakota Republican Party, former general counsel for two Republican governors, and he’s spent years as a lobbyist and consultant for the oil industry. He’s also been an outspoken critic of flaring, which he says has made the western part of the state look “like a freaking huge birthday cake.”
Last year, Harms lobbied the state legislature for the Environmental Defense Fund, a national advocacy group that hadn’t had much presence in the state but wanted to reduce flaring. Harms brings a complex mix of interests to the debate. He had previously worked with companies that wanted to install generators or other equipment at well sites to use the flared gas. He still represents oil field service firms, including some pipeline companies. His family comes from the heart of the oil fields and they own minerals. He said an environmental group is “not something I would typically align myself with." But where the Environmental Defense Fund sees an environmental problem, Harms sees bad economic policy.
In concert with the Dakota Resource Council, Harms pushed a number of bills last session that would have either shortened the length of time companies could flare or restricted the Department of Mineral Resources' ability to grant waivers to its rules. But in the end, Harms' ties to the industry and chairmanship of the state's governing party didn't help much.
When Sen. Tim Mathern, a Democrat, introduced a bill to remove the ability for companies to get a waiver from the one-year limit on flaring, Harms and the Dakota Resource Council spoke in favor. Ron Ness, of the Petroleum Council, followed, and told a Senate committee about the difficulties his members faced. Early estimates of the volume of gas proved too low, he said, and while energy companies have been investing billions of dollars in new pipelines, gaining easements and building the infrastructure takes time. He urged the committee instead to consider incentives to encourage capturing the gas. The next day, the committee voted the bill down.
As it turned out, a bill was working its way through the legislature that would do just what Ness had suggested. The House had passed a measure that offered tax cuts for companies finding alternative methods of capturing the gas. When it reached the same Senate committee, Harms convinced lawmakers to adopt an amendment that shortened the allowable time to flare without paying taxes and royalties to six months. But when the two chambers met in a conference committee to work out details, two representatives stood firm against the amendment. Rep. Glen Froseth, a Republican from the same district as Onstad, said the incentives would work and stressed the need "to keep this oil industry going." (Froseth raised $2,300 from oil interests in 2012, out of a total $8,350.) Eventually, the senators yielded and the amendment failed. The result, in Harm’s words, was "window dressing."
"The political will just didn't exist, and I think the industry was resistant to any of those changes," said Harms, sitting in Peacock Alley, one of Bismarck’s main political watering holes, where lawmakers and lobbyists mingle during the state’s short, biennial legislative session. He was wearing a light brown suit that accentuated his long frame, with a "Reagan Republican" pin in the lapel. "The industry has a fair amount of influence, as you would expect it to. They've been here for 60-plus years...I'm a big fan of the oil industry. I represent people in it. My family grew up in it...So the western part of the state is pretty friendly to the oil industry. And you'd expect an industry that’s been here that long to have lots of friends and lots of influence, appropriately. It isn't universally true, but if the industry opposes a bill, it’s going to have a more difficult time getting passed."
Even among friends, though, patience is wearing thin on flaring. The towering flames of gas can burn as loud as jet engines. Some residents who live near flares have complained of headaches, nausea and other symptoms. While they’re only one of many sources of emissions, many residents complain of deteriorating air quality across the region.
"We had to check the wind everyday, because you don't know what was in that stuff," said Jorgenson, the farmer and rancher near White Earth, who has wells near her home that have flared on and off for years. "It just interferes with the normal things in your life like going for walks, hanging out the laundry. I used to go cross-country skiing, horseback riding. Our horses don't want to go anywhere near those wells."
A couple of years back, the health department realized that the models the oil companies had been using to estimate emissions from well drilling and operation had been too low. As a result, thousands of wells had been emitting toxic pollutants like benzene and toluene for years, potentially at levels above the allowable limits. The state worked with oil companies to revamp their models, and has reached consent agreements with 32 companies since the beginning of 2013. The companies agreed to install better equipment to cope with the emissions and to pay a collective total of $2.6 million for the violations.
Glatt, of the Health Department, said his division’s monitoring network has detected a slight increase in particulate pollution in the region, but not to unhealthy levels. The Dakota Resource Council and other critics say that the monitors are too few to notice any problems — only one is located in the heart of the drilling region, and it was put there in 2012. The monitors measure ambient air quality and likely would not reflect more localized problems caused by flares, they say.
Glatt said he understands people's concerns, but that the state’s monitoring system, set under guidelines from the federal Environmental Protection Agency, continues to show compliance with federal standards. "There's a lot of wind, and there’s a lot of dispersion out there, so I really don't think there’s enough [pollution] that it's changing the air quality."
Perhaps. But in July, the Industrial Commission announced that it would institute targets for reducing flaring, and would require that companies curtail their oil production if they are not hitting those targets.
The goals, however—cutting flaring to 26 percent of all the gas produced by the end of this year and dropping the limit gradually to no more than 10 percent by 2020—were set by the industry itself, in a series of recommendations it gave to the commission. Companies also must now submit plans for capturing the gas when they apply to drill a well, another recommendation from the industry.
The rule has met mixed reviews. Notably, the targets are percentage-based, meaning the total volume of flared gas may not drop as quickly as the figures suggest, since production continues to increase. Dan Grossman, regional director of the Environmental Defense Fund’s Rocky Mountain office, was happy to see the commission tie production to statewide flaring targets, a move he said the industry fought. Grossman said the rule is a good start, but that North Dakota still has a long way to go to catch up with other oil and gas producing states. "They're all below 10 percent," he said. The federal Bureau of Land Management is also developing rules for wells on federal lands.
In an interview before the rules were announced, Helms, the regulator, defended his department's approach to flaring, saying that the wells turned out to produce far more gas than anyone expected and that there simply was no feasible way to capture more of it.
"We try really hard not to give the industry any more input into the rulemaking than we give the landowner groups," Helms said. "I will say that typically, when industry comments on rule making, they have engineers and geologists and lots of technical experts at their disposal, and so their comments are often much more to the point and make a huge difference in terms of what the final rule comes out like."
Morrison, of the Dakota Resource Council, put it a different way. "How do things work? North Dakota state government says, 'What should we do?' And then the industry comes back and tells them how to do it."
Dan Kalil, 57, wears a broad, Wilford Brimley-style mustache, and is, in his words, "a conservative and a conservationist." He doesn't belong to either political party, but he is a longtime county commissioner in Williams County, which includes Williston, the biggest town in the oil fields, and he’s fed up. Early one morning over eggs at the county courthouse cafe, Kalil described a state of constant churning chaos, where drillers do what they want and regulators are unresponsive at best.
"The attitude is, we’re sitting in Bismarck, we don't care," he said. "At five o'clock down there, those people clock out and go home...It's never over up here. The day is never over, the pressure's never over, the stress is never over, and the noise is never over."
Kalil said the state failed the people in the oil fields by allowing the drilling to proceed faster than the region could cope with it, a sentiment shared by many here. But the Mineral Resource Department's Helms said the state constitution prohibits them from withholding leases purely to control the pace of development, not only to protect oil companies' right to drill, but also mineral owners' right to exploit their property.
And there lies the rub. Because mineral rights can be sold separately from the land above them, many here do not own the oil below their farms. In some cases, mineral owners live hundreds of miles away in other states. If they lease their land, there's nothing a surface owner can do to stop the drilling, even if it wreaks havoc on a treasured way of life for folks like Kalil, whose grandfather came to the area a century ago as part of the homestead movement led by the Northern Pacific Railway.
There's an old farmstead on Kalil’s property where his son used to take a packed lunch and a BB gun and spend the day catching frogs. Then one day an oil company plopped a well right next to it. "He was just so upset at this intrusion, losing his favorite place," he said. "We didn't need the countryside run over. We've just been trammeled." Kalil speaks in low, understated tones, belying any agitation. "I'm upset that the state has allowed the industrialization of western North Dakota. I thought this was paradise. I counted myself so lucky to have been born here. Everything I wanted in life was here. I had no desire to go anywhere else," said Kalil. "All I wanted to do was farm and ranch, from the time I could stand up. And it's stolen the future for a lot of people who wanted to retire here, who wanted to live out their days here. It's stolen mine."
Nicholas Kusnetz is a reporter for the Center for Public Integrity. CPI data reporter Ben Wieder contributed to this story.