Applying some lessons from the Gulf oil spill to hydraulic fracturing.

• Author: Robertson, Heidi Gorovitz
• Position: I. Internal Conflict of Interest Within an Agency C. Enforcement 2. Enforcement in Ohio through Conclusion, with footnotes, p. 1305-1335 - The Law and Policy of Hydraulic Fracturing: Addressing the Issues of the Natural Gas Boom

In 2010, ODNR's Division of Mineral Resource Management (DMRM) had twenty-one oil and gas inspectors assigned to five of its seven field offices. The agency has an inspector priority matrix to assist it in risk assessment and to help define inspectors' work priorities. The agency has prioritized well construction and hydraulic fracturing operations as critical areas on which inspectors must focus. Inspectors were responsible for issuing 1,533 permits in 2010, including 690 drilling permits, according to the 2011 ODNR Ohio Oil and Gas Summary. (152) Furthermore, these inspectors were responsible for overseeing the plugging of 355 wells, and the drilling of 460 oil and gas wells in forty-two of Ohio's eighty-eight counties. (153) In total, the ODNR's inspectors processed over 49,435 production reports for 2010. (154)

Ohio's Senate Bill 165 provided statutorily for fee increases to support new positions within the agency, presumably for additional inspectors, and created multiple new funding mechanisms to support the agency's activities. (155) Before the implementation of Senate Bill 165, there were approximately thirty-five full-time equivalent positions in the oil and gas program. (156) Plan implementation and additional funding could double this number. (157) Well constructors must notify ODNR within twenty-four hours or at "another time period agreed to by the chief's authorized representative" prior to well pad construction, and ODNR must conduct a site review prior to issuing a permit and prior to well pad construction. (158) 0DNR sends out a weekly notice to the county engineer of each county that contains an active well or has proposed drilling activities. (159) The agency also provides notice to municipal authorities in those areas. (160)

Ohio seems to suffer from enforcement problems similar to those that befell MMS in the Gulf. A single agency controls permitting, inspection, and enforcement, which is not at all unusual in an administrative state, but, like MMS, the Ohio agency is underfunded and therefore suffers from an insufficient number of inspectors. This was a problem in the Gulf, and ODNR and the Ohio legislature should continue to work to ensure that Ohio is able to carry out sufficient high-quality inspections to identify looming problems and make corrections before disaster strikes.

One additional issue regarding the Ohio enforcement process for shale oil and gas development is that, under the Ohio rules, the Department's orders to issue, deny or modify a permit to drill a horizontal well are not subject to Ohio's Administrative Procedure Act (APA). (161) This means that they are not subject to public comment or to the timeframe requirements required by the Ohio APA. This is troubling, and it sets Ohio's process apart from the federal system (and systems in other states), which generally allow for more public participation. Assuming that agencies do learn and improve through the public participation process, this omission limits the ability of the Ohio agency to learn about potential issues and areas of concern with respect to its permitted drilling operations.

4. Conclusion Regarding Conflicts of Interest

   Whereas at the time of the Gulf disaster the MMS controlled several activities that presented internal conflicts of interest, Ohio's regulation of oil and gas production does not present this problem, at least not to the same extent. Unlike the situation with MMS, Ohio does not have a single agency controlling the conflicting functions of leasing, enforcement, and revenue collection.

   Whereas MMS controlled leasing of drilling rights in the Gulf, ODNR has no control over leasing. Instead, Ohio leases are private transactions. No state agency in Ohio is handing out leases. And although MMS collected revenue in various forms, ODNR does not serve that function. The Ohio system is not without fault, but its faults do not vest in the agency an authority that would conflict directly with its other responsibilities. Still, ODNR's system presents some problems regarding revenue collection. In particular, the gas well fund, which is statutorily authorized and tied to the severance tax rates, helps fund the agency and Ohio's coffers. This is concerning and is worthy of further study. Rather than the agency dismantling seen at the federal level, the DMRM has realigned staff into single program areas, which makes sense substantively, provided the reorganization does not create internal conflicts of interest. In particular,

   [t]he Oil and Gas Program developed a very detailed realignment plan, which included a thorough analysis of funding, staffing levels, and priority workloads. The realignment plan was used as a guideline for the development of SB 165. Specific positions, including inspectors and geologists, were identified as necessary to address complaints, including those associated with hydraulic fracturing. Well construction and hydraulic fracturing operations were re-prioritized as critical job coverage. SB 165 included increases in certain fee schedules and created a number of new funding mechanisms to support division activities. The division staffing levels will almost double and hiring of staff has been initiated. (162) Thus, the oil and gas program developed its realignment plan, with stakeholder input that included an analysis of funding, staffing levels and priority workloads.

   More recently, in October 2011, the oil and gas program formerly under the ODNR DMRM became a standalone division known as the Division of Oil and Gas Resources Management. (163) This has effectively separated oil and gas regulation from the regulation of the state's other natural resources. If Ohio can keep an eye on the funding mechanisms, and keep the inspection function independent of revenue collection, Ohio's system will not present the debilitating conflict of interest that MMS faced in the Gulf.

   2. RESEARCH AND FOLLOW-THROUGH

   The next lesson from the Gulf that could be useful in Ohio is that of follow-through in research or investigation, especially when there is an indication of a potentially dangerous problem. According to the many investigations and reports following the Gulf coast disaster, failure to follow through on indicated safety issues was a persistent and ultimately devastating problem. This Part will provide some examples of insufficient follow-through on research from the Gulf experience, and will suggest that Ohio agencies demand better accountability from the drilling industry with respect to following through in determining the causes of accidents and preventing them from occurring in the future.

1. Some Examples of Insufficient Research or Follow-Through in the Gulf

   In addition to facilitating the insufficient numbers and quality of inspections in the Gulf, underfunding of MMS meant that there were insufficient resources to do the research needed for responsible rulemaking. (164) Fundamentally, there have been numerous and rapid changes in the technologies associated with oil and gas development and production in ultra-deep water as well as shale. (165) With respect to offshore drilling advances, there have been improvements in offshore drilling rigs, including the advent and incorporation of dynamic positioning devices and more sophisticated navigation systems, enabling drilling in waters thousands of feet deep. (166) Many of these advances have reduced adverse impacts for the environment. For example, according to a Department of Energy Report, technological advances in the oil and gas industry have led to the use of 22,000 fewer wells than were necessary in 1985 to develop the same annual amount of oil and gas reserves, (167) a decrease in drilling waste by as much as 148 million barrels due to increased well productivity, (168) and a decrease in the drilling footprint of well pads in relation to production due to advances in drilling technology, such as modular drilling rigs and slimhole drilling. (169) Also, the size and weight of drilling rigs have decreased, thus reducing their surface impact, (170) while new exploration techniques have helped double the success rate of targeting productive wells, thereby reducing the amount dry holes. (171) With respect to advances in shale oil and gas production technology in particular, in recent years increases in available horsepower have enabled drillers to accommodate horizontal wells rather than merely the vertical wells of the past. (172) In addition, advances in the composition of fracturing fluids have led to better, longer lasting fractures in the target formation. (173) Recovery of oil and gas via vertical drilling is strictly limited to the depth of the pipe itself; for example, when drilling into a shale formation 100 feet thick, vertical drilling allows one to reach only 100 feet of rock, and limits recovery to that amount. (174) With the arrival of horizontal drilling, it is now possible for well operators to set a pipe horizontally through a mile or more of the same formation, thereby accessing 5,200 feet of rock rather than the 100 feet accessible using vertical drilling. (175) Drillers can now also drill extremely precisely, hitting specific targets far underground. It just makes sense that these advances would lead to vastly greater productivity.

   So, changes have occurred in the areas of technology, practice, and risk management. In the Gulf, this is due largely to the expansion of oil and gas exploration into ever-deeper waters, and the necessary and resulting advances in technology that make that drilling possible and largely successful. On land, the combination of hydraulic fracturing and horizontal drilling has also moved quickly, leaving regulators scrambling to keep up with advances in the way technology is used. In the Gulf, neither government nor industry had kept up sufficiently with these changes in terms of their ability to manage and oversee the safety of resulting operations. (176) For example, rather...