The $16 Million Was Supposed to Clean Up Old Oil Wells; Instead, It’s Going to Frack New Ones

North Dakota, where Covid-19 rates are surging, is redirecting the federal relief money, turning it into grants that will go directly to oil companies.

Oct 28, 2020
Activity at a Bakken oil well pad south of Watford City, North Dakota. Credit: William Campbell/Corbis via Getty Images

Activity at a Bakken oil well pad south of Watford City, North Dakota. Credit: William Campbell/Corbis via Getty Images

North Dakota's top oil and gas regulator had a problem. With winter bearing down, his department had yet to spend $16 million in federal coronavirus relief funds earmarked for cleaning up abandoned oil and gas well sites across the state, and the arrival of cold weather would halt the work. 

If the money wasn't spent by the end of the year, the state would lose it. So Lynn Helms, director of the state's Department of Mineral Resources, proposed a different use for the funds: paying oil companies to hydraulically fracture new wells.

The proposal landed in front of state lawmakers on Wednesday during a budget meeting that many members attended remotely, calling in from easy chairs and living rooms because of the state's surging coronavirus caseload. Despite pleas from some lawmakers that the money would be better spent helping nursing homes safely allow family visits or amplifying contact tracing, the committee approved Helms' request.

Now North Dakota is poised to provide cash grants of up to $200,000 directly to any oil company that's ready to get to work.

The state's oil development is stagnating along with the price of oil, which is too low to spur much fracking activity, and Helms said the grants will change that. They will more than pay for themselves with the additional tax revenues they'll generate, he said, and will help put back to work hundreds of people who once criss-crossed the western corner of the state, fracking oil wells.

But state Rep. Joshua A. Boschee, a Democrat who voted against the proposal, said, "To divert funds away from addressing the public health needs of the citizens while this virus peaks is irresponsible."

Scott Skokos, who heads the Dakota Resource Council, a local environmental group, said in an interview before the hearing that the repurposing of funds seemed to get things exactly backwards. Money that was supposed to clean up old oil wells will instead be used to bring new ones to life. And if the $16 million can't go toward that clean up because of the weather, he said, what about sending it directly to some of the state's residents who are struggling to pay bills or keep businesses open, as coronavirus cases rise to some of the highest levels in the country?

"They're giving taxpayer dollars to the oil industry to frack wells with the hope it will bring the state more taxpayer dollars," Skokos said, "rather than taking the taxpayer dollars and actually using it to benefit taxpayers."

Many members of Skokos's group, who are mostly farmers and ranchers, have lost the use of portions of their land to decrepit well sites that were abandoned decades ago in previous oil busts. Helms has said the sites will be cleaned up next spring, once the ground thaws, using state funds instead. Even so, Skokos finds the repurposing of the money to frack new wells baffling.

"This is just a wild misuse of taxpayer dollars," he said.

At the hearing, lawmakers in favor of the decision said that some of the small businesses that service the industry are struggling to get through the downturn—oil-producing counties have some of the highest levels of unemployment in the state. The money would provide a lifeline, they said.

The $16 million in question is just a small example of the many ways the oil and gas industry has benefited from the coronavirus relief package that Congress passed this year. According to Bailout Watch, an advocacy group funded by Rockefeller Philanthropy Advisors, petroleum companies have received between $9 billion and $13.8 billion in direct assistance from the federal government. The Main Street Lending Program, in particular, was adjusted in ways that benefited oil companies, many of which were already saddled with high debt loads before the coronavirus struck. Bailout Watch found that the industry accounted for a growing portion of loans coming through that program, about 15 percent of the lending provided in September. 

Helms was not available for an interview, but Katie Haarsager, a spokeswoman for the department, said the idea for the reallocation of funds grew out of discussions with representatives of the oil industry and other state agencies. In an email, she said the people who would have been employed cleaning up well sites with the federal money will still be put to work in the spring. "Redirecting the money will now allow others who also have lost work to be back on the job fracing wells that are sitting uncompleted," she added, using the industry spelling for the drilling method.

In its request to redirect the funds, the department said the proposal would create hundreds of jobs. North Dakota is highly dependent on taxes from oil production, which plummeted earlier this year, and the oil-related income it provides.

While production has climbed most of the way back, the department said it will start to fall again soon, because current oil prices aren't high enough to prompt oil companies to complete their wells—the state has more than 800 wells that have been drilled but have not been fracked, the final step before production begins. The grants, Helms said in the request, would stabilize production and boost tax revenues. He said several companies have already committed to frack more than 60 wells with the funds.

But those companies would probably frack those wells anyway, eventually, even without the grants, once oil prices climb high enough to warrant it. At the legislative hearing, Helms acknowledged that most of the jobs provided will only last as long as the funding, through the end of this year, after which the workers may again be furloughed.

"This is like a taxpayer bailout to the oil industry to get them to do something they would do anyway." Skokos said. "It's like corporate welfare at the highest level."

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