Reprinted with permission from High Country News. Not for republication by Wyoming media.

In 1954, the Empire State Oil Company drilled a gas well in central Wyoming. The well turned out dry but showed some gas in an unexpected shallow formation. It wasn’t worth much at the time, so Empire plugged the well and abandoned it. A geologist named John Wold, however, believed the area merited further exploration. “I thought for many, many years we ought to take another look at that,” he says.

So 55 years later, when the price of natural gas rose, Wold Oil Properties drilled a vertical well near the old site. Exploring for oil and gas in areas not known to harbor fuels in commercial volumes is called “wildcatting,” and it’s risky business: Only one or two out of every 10 wells produces enough to be viable. Each well costs $1 million to $5 million or more to drill, so a couple of dry holes can bankrupt a small company. Wold passed the business on to his sons, but at 95 he still comes into the office every day, hooked on the challenge.

Aaron Otteman, exploration manager for Wold Oil Properties, climbs a holding tank to check the depth of oil inside at a wildcat well his company operates in central Wyoming. (Emilene Ostlind/High Country News — click to enlarge)

In the U.S., independent companies — many of them multigenerational family-owned businesses like Wold’s — do most of the wildcatting, drilling more than 93 percent of the nation’s new oil and gas wells and accounting for about 67 percent of total oil and gas production. Meanwhile, major corporations like ExxonMobil and ConocoPhillips tend to wait for the wildcatters to strike black (or gassy) gold, then buy them out and develop the proven resources.

But wildcatting is becoming trickier as conventional reserves are depleted and drillers must figure out how to tap harder-to-reach stores of fuel. “We are burning more oil and gas in the world today than we are finding,” Wold says. “Every field you find is one less target. It’s getting harder and harder to find new prospects worth exploring.”

The U.S. passed peak domestic oil production around 1970. When prices dropped in the ’80s and ’90s, wildcatting slowed down. Then, in May 2000, a Montana contract geologist named Richard Findley became a wildcatting legend. He was just about to ditch prospecting to flip burgers in a buddy’s restaurant when he figured out how to open up North Dakota’s formerly unproductive Bakken Shale by marrying horizontal directional drilling with hydraulic fracturing. With that, he launched what’s now North America’s largest oil play and became a millionaire overnight.

The once sparsely populated North Dakota plains have since been transformed into an industrial landscape, from which more than 6 percent of U.S. domestic oil flows. And Findley’s breakthrough has started a whole new boom worldwide, opening dozens of other previously unreachable energy reserves — and inspiring wildcatters like Wold, who believes his company might be on the brink of discovering a significant new play near the old Empire well.

The pickup bucked over frozen snowdrifts on a March afternoon as Aaron Otteman drove toward the 2009 well. He hunched his tall frame to see out the windshield, his reddish beard jutting forward. A geologist by training, Otteman, 35, was hired as exploration manager for Wold Oil Properties in 2009. He grew up climbing and skiing in the mountains near Pinedale, Wyo., and got into geology because he wanted a career that would let him explore his home state. He grimaces when he thinks of how the recent Pinedale Anticline gas boom has industrialized his hometown, but, like Wold, he loves his job. It allows him to raise his children in Wyoming while using his scientific training for what he considers responsible, locally based energy development.

It’s hard work, finding oil and gas hidden thousands of feet underground. Fifty years ago, geologists relied on aerial photos and surface mapping to discover new reserves, looking for conventional traps such as domes of geologic layers buried underground, like a facedown onion half, holding the fossil fuels in place. These are obvious to a trained eye, especially in Wyoming’s treeless basins. But most of the easy targets were drilled long ago. Those once-valuable aerial images are now freely available through Google Earth; if you pick out an oval of colored striations in Wyoming and zoom in, you’ll likely see it pocked with oil wells.

“Rather than just mapping the surface like conventional geologists did back in the day, now we map the subsurface,” Otteman explained as the truck approached the well. Using his “three-headed girlfriend,” a computer with three monitors, he compiles any data he can get — geologic maps, seismic data, gravity and magnetic information, well logs from existing boreholes showing things like gamma rays, density and conductivity — and diagrams his best guess of what’s underground.

Otteman helped oversee the drilling of the 2009 vertical well, based on Wold’s hunch. It didn’t produce gas from the targeted formation, but there was a little oil from a layer of limestone at the bottom of a formation called the Niobrara Shale — the same layer that’s hosting a huge oil play some 200 miles away in the Denver-Julesburg Basin where Wyoming, Nebraska and Colorado meet.

“I said, ‘Well, that’s interesting,’ so I threw a lot of science at this well bore,” Otteman recalled.

He ran a suite of well logs. Then he used “a very small frack” — only 33,000 pounds of sand compared to the 5 million pounds used on deeper wells in thicker formations — to break up the limestone bench. When the frack fluid flowed back out, about 75 barrels of oil came with it, “a good show, but certainly not economic when you spend a million dollars on a well. And so I just sat here going, ‘Well, what do we do now?’ ”

A wild horse, its tail wrapped around its haunch by the wind, watched from a hill as Otteman parked on the gravel pad by the wellhead. He clamped a hardhat onto his head and scuttled up a ladder welded to the side of a 20-foot-tall tank to measure the depth of the oil inside. Then he climbed back down and cracked a valve on the wellhead, peering carefully at the pressure gauges. Gas hissed through the narrow metal pipe connected to the tank and gurgled up through the oil inside. After a while, oil followed, not much — around 30 barrels a week — but enough to convince Otteman to drill a second well nearby, this one horizontal, more expensive but better able to access the trapped oil, he hoped.

After eight months of permitting and regulatory hurdles, the company drilled the horizontal well in August 2011 and finished fracking it in November. “It’s not easy to find oil and gas in commercial volumes,” Otteman said worriedly at the time. “It’s incredibly expensive and there’s a lot of pressure, especially as the sole geologist on something saying, ‘OK, boss, I think you should go spend $2.6 million here on a small horizontal well and we can test this concept.’ ‘Are you sure?’ ‘Well, no, I’m not sure.’ ” The new well cost over $3 million, enough to “make or break small folks if this does not work out,” Otteman explained.

In late December, oil production looked promising and Otteman sounded optimistic. Then, in early January, production fell off, and the well’s economic future became uncertain. “It’s a strikes and gutters game,” Otteman said. “Unfortunately, it seems like there are more gutters than strikes.”

Emilene Ostlind was a High Country News editorial fellow in the winter of 2011 and now works as a freelance journalist in Lander, Wyo.

Reprinted with permission from Environment & Energy Publishing, LLC. Not for republication by Wyoming media.

U.S. EPA’s decision to truck water to four homes in Dimock, Pa., is just its latest move to bypass state regulation of natural gas drilling and hydraulic fracturing.

From the suburbs of Fort Worth, Texas, to Pavillion, Wyo., to northeastern Pennsylvania, EPA officials have taken increasingly bold steps in drilling pollution cases, implying or even proclaiming that state officials did not do enough to protect their own residents.

It is generating friction between EPA and leaders in some of the states. One state official called EPA’s understanding of the Dimock situation “rudimentary.” Another called EPA’s Texas move a “frontal assault” on drilling.

To the oil and gas industry, EPA’s moves are a sign of the Obama administration’s underlying hostility to domestic petroleum production and signal interest in increased federal regulation of hydraulic fracturing.

“EPA is thinking very creatively about hydraulic fracturing,” said John Riley, a lawyer in Bracewell & Guiliani’s Austin office, who is involved in the suburban Fort Worth case, but commented only on the broader trend. He said the agency is using legal authority that is “questionable or even dubious.”

But some residents and activists have applauded EPA officials for taking on a powerful industry when state government was unable or unwilling.

“For some of us, they are our only hope,” said Sharon Wilson, an activist with Earthworks in Texas, who is also involved in the suburban Fort Worth case.

Publicly, President Obama has tried to walk a middle path regarding the boom in domestic oil and gas drilling. In his State of the Union speech Tuesday he stressed support for production, but he stressed it must be done safely.

That middle path is not an easy one. Environmentalists are unsettled by his support for drilling, and the industry does not believe him.

Republicans in Congress have also taken notice. They have accused the administration of doublespeak and they have scheduled a hearing for next week in the House Science Committee to lambaste the agency’s investigation in Wyoming. House Oversight and Government Reform Chairman Darrell Issa (R-Calif.), the Republicans’ chief inquisitor, is ramping up a probe into how EPA and DOE have dealt with hydraulic fracturing and shale gas drilling. Issa says the agency is not living up to EPA Administrator Lisa Jackson’s stated support for state-based regulation.

State officials are the primary regulators of the country’s boom in onshore oil and gas drilling, and industry likes it that way. Industry officials say state officials more so than federal or local authorities, have the most local expertise.

Unlike EPA, state oil and gas agencies are not charged exclusively with protecting the environment and human health. State laws order most of them to balance regulation with promoting oil and gas development. And they frequently have close ties to the local industry.

Environmental groups and some Democrats have criticized state regulation of drilling. Democrats in Congress, such as Sen. Bob Casey (D-Pa.) and Diana DeGette (D-Colo.) have introduced legislation to repeal an environmental exemption and give EPA more oversight of hydraulic fracturing. But the legislation is staunchly opposed by Republicans and failed to advance even when Democrats controlled Congress.

Wyo. probe, Texas dustup

The Wyoming investigation began in 2008, before Obama won the presidency. People in Pavillion, a small community in the middle of the state, had complained for years about problems with their water, but Wyoming oil and gas officials had taken no action against drillers, said Deb Thomas, an activist with the group Pavillion Area Concerned Citizens.

After initial testing, federal officials recommended in 2010 that some well owners use alternate sources of water for drinking and cooking. But the agency’s draft findings, released last month, yielded mixed results.

EPA scientists concluded that hydraulic fracturing fluid had contaminated the aquifer under Pavillion, interrupting the industry refrain that there has never been a documented case of water contamination from fracturing. But they said those chemicals had not reached the drinking water wells of people in the community. And EPA officials said contaminants did not exceed drinking water standards.

State officials have criticized EPA’s findings. Gov. Matt Mead (R) called them “scientifically questionable.” State Oil and Gas Supervisor Tom Doll suggested EPA might have accidentally contaminated the aquifer itself.

Mead has said the state should be in charge of the investigation. But critics say the state missed its chance when it failed to act before 2008.

“For over a decade the state failed to investigate, identify and address the contamination issues and huge human health impacts occurring in the Pavillion area,” Thomas said. “Our members believe Governor Mead and the state agencies should be thankful that the EPA came to Wyoming’s aid with the substantial funds and scientific expertise that is needed.”

EPA officials have been less critical of Wyoming officials. The chronology in the report makes no mention of state efforts, starting only when people in Pavillion complained.

In Texas, EPA pulled no punches when it overrode state officials to issue an emergency order against Range Resources Corp. in December 2010. The agency alleged that the company contaminated at least two water wells with methane and benzene.

Dallas-based EPA Regional Director Al Armendariz acted under the emergency provisions of the Safe Drinking Water Act, which require EPA to determine that local authorities have not done enough to protect human health. When an Armendariz aide notified then-Railroad Commission Chairman Victor Carrillo, the state’s top oil and gas regulator, Carrillo replied with an email calling the federal action “premature.”

Armendariz forwarded Carrillo’s reply to EPA headquarters officials with a single-word message: “Stunning.”

In a hearing called shortly thereafter, the Railroad Commission exonerated Range. One member of the commission called EPA’s action “a frontal assault on domestic natural gas production.”

Still, EPA has not backed off from its emergency order. The case is pending in federal court, awaiting a ruling from an appeals court.

EPA has also weighed in on proposed new drilling rules in New York, suggesting improvements the state Department of Environmental Conservation could make and questioning whether the state has the resources to enforce the rules it is proposing. And in Pennsylvania last year, EPA pressed state officials to do more monitoring of Marcellus Shale drilling wastewater. The pressure came after The New York Times reported wastewater was being sent to treatment plants unable to handle the radioactive material it contains. Pennsylvania officials later reported radioactivity tests came back “at or below” safe levels (Greenwire, March 8, 2011).

The agency is doing a multi-year study of the safety of hydraulic fracturing. It will supplant a 2004 study that relied largely on reports from state agencies to conclude hydraulic fracturing presented little risk. This time, EPA has said it will test on its own.

‘Out on a limb’?

Dimock is the first of the interventions to take place even after a state investigated and punished a company for environmental violations.

The Pennsylvania Department of Environmental Protection shut down some of Cabot Oil & Gas Co.’s wells, fined the company and negotiated a $4.1 million settlement in which all of the affected homeowners got at least two times the value of their home, and kept any mineral rights. The state’s investigation began after residents in the small community began complaining of cloudy, foul-smelling water in 2008.

Cabot also delivered water to affected homeowners until November, when state regulators agreed it could stop. The residents say their aquifer is still contaminated.

Since November, EPA has flip-flopped several times about how to handle Dimock. First, it said the water posed no health risk, then that it merited more study. Earlier this month, the agency promised to deliver water but reneged within 24 hours.

Then, last week, EPA flipped again. The agency announced it would test 60 wells and deliver water to four homes.

Cabot denies contaminating the wells, saying most wells in the region were laced with methane long before the arrival of drilling. In a letter to Jackson yesterday, Cabot CEO Dan Dinges said “EPA’s actions in Dimock appear to undercut the President’s stated commitment to this important resource, even in light of EPA’s regulatory mission.”

The EPA interventions have generated some barbed comments between EPA officials and Pennsylvania DEP Secretary Michael Krancer. First, Krancer sent EPA regional officials a letter stating the agency had only a “rudimentary” understanding of the Dimock situation. He also derided EPA’s Pavillion report as a “rush to conclusions.” The next day, Jackson told reporters his words were “puzzling” and not helpful to people in Dimock.

John Hanger, who oversaw the Dimock case as head of the Pennsylvania DEP under Democratic Gov. Ed Rendell (D), said he is all for more testing and monitoring. But he said what EPA has found does not necessarily point at contamination from drilling.

“It’s unusual for EPA to insert themselves. It does demonstrate the restraint EPA has shown in the past,” Hanger said. “Perhaps it demonstrates how far out on a limb they are now.”

Banner photo courtesy of the office of Senator Mark Udall.

Two worker advocacy groups say that, for 10 years, Wyoming and industry leaders have failed to take the carnage of workplace fatalities seriously, and they’re urging the state to use its “legal power and moral authority” to force immediate changes on the ground.

“It’s high time that state government and the Legislature quit playing games with the lives of workers in Wyoming,” Wyoming State AFL-CIO executive secretary Kim Floyd said in a prepared statement on Friday.

“Eight years of being worse or second-worst in death-on-the-job is proof that there’s a problem in Wyoming that needs to be remedied,” Floyd added. “They need to step up to the plate.”

Wyoming AFL-CIO and the Spence Association For Employee Rights (SAFER) issued the joint press release in reaction to a recent report by Wyoming’s occupational epidemiologist Timothy Ryan. After 16 months on the job, Ryan submitted a 9-page “interoffice memorandum” to Gov. Matt Mead on December 19 detailing his analysis of Wyoming’s workplace fatality data. Ryan then resigned to take a job with a safety consultant in Cheyenne.

Ryan has declined to comment since his resignation.

According to the report, one Wyoming worker was killed on the job every 10 days for the past 10 years. On a per-worker basis, no other state in the nation killed more workers for a nine-year period. In 2007, the Cowboy State’s workplace fatality rate was 17.1 per 100,000 workers — more than four times the national average.

In this 2009 photo, Ensign driller Bruce Day operates an "iron derrick hand" and other automated equipment designed to make drilling safer. (Dustin Bleizeffer/WyoFile - click to enlarge)

The reason for this persistent tragedy? “Safety occurs as an afterthought,” Ryan wrote in the report.

Ryan was hired by the state in 2010 to fill-in the many missing gaps in workplace fatality data, to determine root causes, and recommend a strategy to emulate Alaska’s successful effort in addressing its workplace fatality problem. After analyzing 17 years of occupational fatality data and speaking with “hundreds” of employees in the state, Ryan said the underlying cause of Wyoming’s apparent lack of a “culture of safety” boiled down to four points:

— There is a breakdown in communication between the upper management, supervisors, and employees regarding safety.

— “Often the safety training that we receive is not enforced on the worksite.”

— Employees are told to “get the job done” and safety protocol and rules are not enforced, resulting in injuries and fatalities.

— On any one job-site, there can be a wide range in the safety standards.

And Ryan’s recommendations:

— Organize and develop continuity of ongoing efforts.

— Develop data monitoring system for the collection and timely analysis of occupational data.

— Promote OSHA courtesy inspections.

— Support efforts by industry to develop, monitor and enforce safety standards and practices.

Based on Wyoming’s past performance, families could expect to see nearly three dozen workers killed this year. Yet neither Gov. Mead or the Legislature have announced plans for any immediate action. And that has drawn the ire of worker advocates.

“Another year has passed but Dr. Ryan’s report offers only more of the same palliatives, calling for continuing data collection and monitoring, along with more encouragement of industry efforts to reform itself – efforts that industry itself admits have failed,” Wyoming AFL-CIO and SAFER wrote in the joint press release.

One of Ryan’s recommendations is to encourage more companies to take advantage of free “courtesy inspections” provided by the Wyoming Occupational Safety and Health Administration — a program that essentially promises employers they will not be issued citations for violations. Only 2 percent of Wyoming’s employers take part in the program each year, yet even at that rate Wyoming OSHA is so under-staffed that it takes several months to respond to a request for a courtesy inspection.

J.D. Danni of Wyoming OSHA told WyoFile that his agency cannot currently meet Ryan’s recommendation to provide courtesy inspections in a more timely manner. However, Wyoming Department of Workforce Services director Joan Evans added that if Gov. Mead determines that more courtesy inspections are a priority, the state would re-arrange resources to accomplish the goal.

Still, there are eight OSHA inspectors in Wyoming, giving the agency an inspection rate capability of just one onsite inspection every 60 years.

Worker advocates say a weak OSHA presence is just one example of Wyoming’s persistent failure to ensure safe workplaces.

“That Wyoming lacks a strong culture of safety should be obvious to anybody familiar with our State’s abhorrent workplace safety record,” Mark Aronowitz, lead attorney for the Spence Association For Employee Rights, said in a prepared statement.

“What we urgently need is a renewed commitment to safety with on-the-ground changes, from the highest levels of our state government down to individual work sites,” Aronowitz added.

Wyoming AFL-CIO and the Spence Association For Employee Rights said they will also send letters to lawmakers and to Gov. Mead urging them to implement four recommendations:

— Empower OSHA, enabling it to hire more inspectors to not only increase courtesy inspections, but to conduct both scheduled and surprise inspections and subsequently fine and penalize companies violating safety laws. Mandatory inspections should be required following any accident requiring hospitalization;

— Direct OSHA to determine why Wyoming mines, where the federal Mine Safety and Health Administration (MSHA) regulates safety, have significantly better safety records than other hazardous industries;

— Increase penalties and fines for employers and employees who discourage reporting of injuries to avoid increases in Workers Compensation premiums, to protect safety bonuses, or for any other reason;

— Make company injury records public. MSHA does this. General contractors, worksite owners, and workers, especially those working in ultra and extra hazardous industries, deserve to know whether their sub-contractors, independent contractors, and employers have instilled or rejected a culture of safety.

As for the persistency of the problem, Aronowitz told WyoFile in a phone interview, “Either there’s been a lack of imagination or lack of a sense of urgency at almost all levels of the public and private sector. We’ve spent years with interim studies, a workplace task force, WOGISA (a volunteer industry safety group), seatbelt legislation, and I don’t know if a single meaningful thing has happened in Wyoming workplaces.”

More than a year ago, the Wyoming Oil and Gas Industry Safety Alliance (WOGISA) formed in recognition of high workplace fatality rates and has worked to promote “best practices.” Earlier this year, the group formally allied with Wyoming OSHA to help in the effort.

Wyoming Governor Matt Mead. (Dustin Bleizeffer/WyoFile — click to enlarge)

But state lawmakers and the Dave Freudenthal administration (2002-2010), and now Gov. Matt Mead, have remained reluctant to take significant action beyond these cooperative efforts between regulators and employers. In October, Gov. Mead wrote a letter to WOGISA leaders promising that stepped up enforcement and stiffer penalties are not on the table.

“There are many ways to approach the problem: laws can be passed, rules can be written, fines can be levied. I remain unconvinced that these are the best ways to enhance a culture of leadership and safety. I say this because we don’t yet fully understand the problem,” Mead wrote. “I believe we should focus on the prevention and awareness side before we get heavy handed.”

This week, Mead issued this response to Ryan’s report; “These recommendations are a first step on the path to making every workplace safer. They do not provide a solution but show that some systemic changes need to be made.”

WOGISA communications director Bonnie Foster told WyoFile that she’s not sure whether the industry’s voluntary efforts so far will prevent any workplace fatalities in the coming year. But, she said, the group will push for more buy-in from employees, and not just company safety managers. She also said that of the 600 WOGISA members, only a handful are big oil and gas operators. She said the group needs more participation from big companies like ExxonMobile, BP and Shell.

“We’re missing a lot of the operators and some of the small mom-and-pops,” said Foster. “We need to get more operators and we need to get more employees to stand up and say ‘stop it.’”

RELATED STORIES:

Report: Wyoming lacks ‘culture of safety’ January 3, 2012

Official studying Wyoming’s workplace fatality problem resigns, December 20, 2011

Mead declares carrot over stick in workplace fatalities, October 14, 2011

Oil and gas leaders seek to stem deaths on the job, July 14, 2011

Deadly Workplaces; Wyoming’s workplace fatality rate still ranks among worst in the nation, July 12, 2011

Even toothless safety alliance is improvement, June 16, 2011

— Contact Dustin Bleizeffer at 307-577-6069 or dustin@wyofile.com.

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The persistent low price of natural gas continues to push coal-bed methane gas operators in the Powder River Basin to the brink of bankruptcy, leaving some 8,000 to 9,000 wells idle — many of them at risk of mechanical failure.

Usually the bonds posted by companies facing bankruptcy fall short of covering the cost to plug, abandon and reclaim orphaned wells, which is required to prevent environmental damage. The obligation and costs to fix and reclaim the wells then shift to the state. Wells that are left unused but not plugged and reclaimed present a human health hazard and can lead to water and soil pollution.

A coal-bed methane drilling rig located in the Powder River Basin. California-based USA Exploration & Production LLC has proposed that idle wells could be brought back into production with microbial stimulation. (Photo courtesy of USGS — click to enlarge)

This month, Wyoming Oil and Gas Conservation Commission supervisor Tom Doll told legislators he needs $2 million for the state’s “orphan well” fund — twice the normal appropriation for the biennium. The fund is used to permanently close wells that have been abandoned, usually as the result of bankruptcy.

“The request was made due to concern that several current coalbed methane operators could go bankrupt within the next two-three years at these low gas prices,” Doll told WyoFile via email.

But one California company new to the CBM industry, joining forces with Sen. Kit Jennings (R-Casper), is proposing that instead of taking over and cleaning up old wells, the state give CBM operators a three-year breathing space to try to get those old wells going again, working with the new process of microbial stimulation to boost to CBM production.

The company, USA Exploration & Production LLC, was tempted into buying old Wyoming CBM wells by the apparent promise of “biogenic” technology to boost gas levels in old wells through the work of microbes feasting on coal. The process remains untested at commercial scale in the Powder River Basin, but the state of Wyoming and the University of Wyoming regard biogenic coal-bed methane production as a promising way of maintaining long-term production in the Powder River Basin.

Commissioner Ryan Lance, who also serves as director of the Office of State Lands and Investments (which also has a stake in idle CBM wells on state mineral leases), noted that hundreds of idle CBM wells are insufficiently covered under operator bonds. USA Exploration, and others, are essentially asking the state to assume liability for the wells until the operators can eventually launch their microbial stimulation operations, he said.

If legislation for a moratorium on plugging CBM wells does go before lawmakers, it would likely meet skepticism from regulators and environmental groups.

“First, what do you consider is a well bore amenable to microbial enhancement?” said Lance. “We’ll want to know what the total exposure is that’s outstanding that would be subject to the moratorium, and then based upon that number we would want to ensure that the state is covered over the long-term in the event  that either the microbial enhancement doesn’t have the intended effect or there’s some other issue that comes about that doesn’t allow us to realize the gains (being promised).”

Funds to fix idle wells

CBM activity in the Powder River Basin is depicted by new road and pipeline installations in this 2002 file photo. If the number of orphaned CBM wells continue to rise state officials say a mill levy tax increase might be necessary to permanently close the wells. (Photo courtesy of Powder River Basin Resource Council — click to enlarge)

Appropriations to the orphan well fund come from Wyoming’s Conservation Tax — a mill levy currently set at .0004 of a mill on the dollar for the market value of all oil and gas produced in the state. Doll said that a $2 million appropriation for the upcoming biennium will not require an increase of the mill levy. In October the account balance was $14.1 million, he said. But if natural gas prices don’t rebound soon, the bankruptcy and idle well problem in the Powder River Basin will only get worse and the mill levy might have to be increased.

Separate from the Conservation Tax account, the Oil and Gas Conservation Commission holds more than $137 million in various bonds — letters of credit, certificates of deposit, cash, surety bonds, etc. — posted by oil and gas operators.

In 2010, the state hired contractors to “plug and abandon” 122 orphaned coal-bed methane wells at a cost of $867,000 ($321,000 from cashed-in bonds, $546,700 from the orphan well fund). Since, the number of orphaned wells has increased substantially.

“We think there is potential for 800 to 1,000 (orphaned wells),” Doll told the Joint Minerals, Business and Economic Development interim committee earlier this month. “In the short term I think our liability could be $4 million.”

Taking a risk

A few years ago, California businessman John Castellucci heard of a promising opportunity in Wyoming’s stagnated coal-bed methane gas play in the state’s northeast corner. After a decade of boom-style drilling and production, the sinking price of natural gas had erased the industry’s steadily narrowing profit margin. Thousands of wells were shut-in and went up for sale.

Castellucci, president and CEO of Malibu-based USA Exploration & Production LLC, said he was told of a promising approach to revive Powder River Basin coal-bed methane (CBM): microbial stimulation. Luca Technologies and Ciris Energy were in the hunt for idle CBM wells to test their microbial stimulation technologies. Those technologies are based on the fact that microbes living in the coal produce methane from the coal. Some in the CBM industry believe they can boost the biogenic process enough to restore commercial levels of methane production by either stimulating the native microbes with nutrient injections, or by adding more microbes.

A map of the Powder River Basin and the energy production within. Even if microbial stimulation does generate commercial volumes of natural gas, prices will ultimately determine CBM's fate. (Map courtesy of USGS — click to enlarge)

Yet, any secondary or tertiary recovery of CBM after the initial phases of production relies heavily on the price of natural gas. Natural gas prices averaged around $6 per thousand cubic feet (mcf) for much of the CBM boom (1998-2008) and even peaked near $15 per mcf for a short period. But prices for CBM operators have remained below $4 per mcf in recent years. And with a glut of gas in the U.S. market from new shale gas production, industry analysts believe it could be a while before prices improve much.

CBM wells typically produce at smaller volumes and for a shorter period of time than the deep shale gas and tight-sands gas wells which are the primary focus of the industry today. However, the idea of enhanced biogenic methane production from Powder River Basin coals is attractive to some because the expensive infrastructure — pipelines, powerlines, compressors — is  already paid for and in place to move gas to market.

Castellucci was sold on the idea of biogenic stimulation so he invested heavily in Powder River Basin wells: $3 million, representing the bulk of his capital, he said.

But reviving the wells is a slow, expensive and ultimately uncertain process. State regulations had to be modified before agencies could begin to process permit applications for biogenic stimulation proposals, although the state has allowed several test-runs of microbial stimulation in the Powder River Basin.

Castellucci said the state’s five-year “mechanical integrity testing” requirement for idle wells came due on a large number of his company’s wells shortly after he purchased them; a requirement that went unfulfilled. Oil and Gas Commission staff said some of USA Exploration’s CBM wells have been idle for seven years without any mechanical integrity testing to ensure they do not pose human health and environmental risks.

“This is much bigger than USA Production,” Powder River Basin Resource Council organizer Jill Morrison told WyoFile.

“There are a lot of companies who have not lived up to their obligations to pay the required bonds so we can assure we have wells plugged and abandoned and reclaimed. And the state is left holding the liability,” Morrison said, adding that landowners may be exposed to health and environmental risks.

Patriot Energy Resources LLC recently failed to meet the commission’s request to post an additional $711,000 in bonding to cover its idle CBM wells in Johnson and Campbell counties. The bond that the state demands is calculated at the estimated cost per foot to close idle wells, ranging from $5 per foot to $10 per foot. State officials say that an increasing number of CBM operators struggle to meet the mounting liability for their idle wells.

USA Exploration had posted $139,000 in cash-backed bonds with the state, but was notified more than a year ago that an additional $23,969 in bonding was needed to cover its idle wells. Failing to post the additional bonding, Castellucci was called before the state Oil and Gas Conservation Commission on December 13 to resolve the matter and pay a fine.

“Unfortunately, we all made a bad decision buying CBM wells,” Castellucci told the commission. He said he often jokes with his business partners, telling them, “I wish you never would have explained to me what a CBM well was.”

The Powder River between Gillette and Buffalo is at the center of CBM development. The state of Wyoming often seeks additional bonds from CBM operators if their wells sit idle for too long. Some industry insiders say increasing bonds push financially-strapped companies over the edge. (Photo by Dustin Bleizeffer — click to enlarge)

And the situation only gets worse for Castellucci and the state of Wyoming. In addition to the $23,696 in past-due bonding and a $500 fine, the commission staff recommended that USA Exploration post an additional $631,000 in bonding within 60 days, based on the number of the company’s idle wells and how long they’ve remained inactive with no mechanical integrity testing.

Meeting that order, said Castellucci, would force him to “liquidate” his CBM assets and lose his $3 million investment.

“Complying with $23,000 within 30 days, that’s not that difficult. Complying with $631,000 in (the recommended 60 days) would be impossible,” Castellucci told the commission.

At their December hearing, the commission gave Castellucci 30 days to cover the $23,969 in past-due bonding and pay the $500 fine. The commission also ordered that 273 of USA Exploration’s wells be temporarily “sealed” pending a deal to be worked out with the commission staff. Castellucci says he wants to put 140 of his best CBM wells back into conventional production as soon as possible (without a microbial enhancement process), and use the proceeds from gas sales to begin meeting the $631,000 bonding requirement (or a reduced amount) and past-due mechanical integrity testing requirements, as well as plug some wells that are not good producers.

If the staff agrees, it may modify its recommendation to the commission at its February hearing. If the commission isn’t satisfied that USA Exploration can meet the state’s bonding and environmental requirements, it can cash-in the company’s bonds and order the wells to be permanently closed and reclaimed.

Buying Time

Commission supervisor Tom Doll said he and his staff work hard to identify CBM operators with idle wells, and seek assurances from the companies that the wells are being properly maintained. Sometimes that assurance comes in the form of additional bonding. Doll commonly helps struggling operators find potential buyers who do have the financial wherewithal to meet the state’s environmental standards.

But some in the CBM industry say the state of Wyoming is creating a self-fulfilling prophecy by asking companies that are at risk of bankruptcy to post additional bonding which only saps more cash and credit for small operators. And, Castellucci and others argue,  permanently closing wells will only serve to kill the CBM microbial stimulation industry before it gets started.

CBM operators hope to reconfigure gas fields and use nutrient injections to stimulate the biogenic methane production process in Powder River Basin coals. (Photo courtesy of Powder River Basin Resource Council — click to enlarge)

“It’s counter-productive to impose big bonding requirements on small companies because it just takes away money that could be going toward getting wells back in operation,” Castellucci told WyoFile.

So CBM operators are not only pleading for leniency with the state oil and gas commission, but they plan on asking the Legislature to step in and order a three-year moratorium on closing long-idled wells that are considered candidates for biogenic stimulation. Castellucci said he and others are working with state Sen. Kit Jennings (R-Casper) to introduce a bill in the upcoming legislative session.

“Where I think we can go is work out some sort of time delay so  I don’t have to keep making promises to my wife that I can’t keep as to why I’m dissipating our accounts,” Castellucci told the commission.

Contacted by WyoFile, Jennings said he is considering legislation that would buy some time to save CBM wells that show promise for microbial stimulation. But, he said of the draft legislation, “it’s not ready for prime-time.”

“When we finally get this legislation hammered out …  I’m hoping it will give the technology an opportunity to catch up,” said Jennings.

Still, the majority of CBM assets in the basin are in the hands of financially stable companies, according to state officials. While companies such as Anadarko Petroleum Corp. and Williams Production Co. have many idle wells themselves, it’s thought that they can easily keep the wells up to code and put the wells back into production if they see the market improving. So why don’t the big oil and gas players in the Powder River Basin snap up CBM assets from these struggling companies and launch microbial stimulation programs themselves?

“Because the big operators are re-focused,” said Jennings. “Why chase $3 gas when you can chase $80 oil?”

There’s a distinct cycle in the oil and gas industry that begins with small independents exploring for and proving up new plays, as was the case in Powder River Basin CBM. Then big companies buy up the fields, install the expensive infrastructure and take the primary production. Then they shift their drilling and production capital to the next resource play, leaving the small independents to figure out secondary and tertiary recovery — usually at much smaller volumes.

Discharge from a coal-bed methane gas operation flows into the Burger Draw tributary. (Photo courtesy of USGS — click to enlarge)

This is the phase in which many small independents find themselves in the Powder River Basin; trying to survive low market prices long enough to launch microbial stimulation as the industry’s secondary form of production. The Catch-22 for these small independents is that the more idle wells they own, the more bonding they are required to put up to cover the growing liability. It’s also more difficult for small, struggling independents to get letters of credit for bonding than it is for the bigger players with strong finances.

“So these little guys … have to put up their own CDs, houses and college funds and things like that,” said Jennings. Operators like Castellucci are forced to put all of their cash toward bonding instead of using it to plug marginal wells and revive others with microbial stimulation, he added.

It puts the state in a tough position, too, because it cannot let operators off the hook by simply waiving the liability of idle wells — all based on the expectation that market prices will recover and the microbial stimulation technology will actually deliver results as promised.

“But if we’re going to put a stay in place for those idle well bond amounts, we have to ensure that the citizens of the state aren’t left to hold the bag, ultimately, for those amounts. No matter how the legislation is crafted, I hope that that’s a consideration,” said commissioner Ryan Lance.

— Contact Dustin Bleizeffer at 307-577-6069 or dustin@wyofile.com.

(Banner photo by Joost J. Bakker)

REPUBLISH THIS STORY: For details on how you can republish this story or other WyoFile content for free, click here.

If you enjoyed this article and would like to see more quality Wyoming journalism, please consider supporting WyoFile: a non-partisan, non-profit news organization dedicated to in-depth reporting on Wyoming’s people, places and policy.

— This story was written in collaboration with the Rural West Initiative at the Bill Lane Center for the American West.

True to the frontier attitude still prevalent here, oil and gas officials say there’s a treasure of fossil fuels in the West that will take America closer to energy independence than any plan conceived in Washington D.C.

While speaking to a group of energy industry leaders in Wyoming recently, Chesapeake Energy’s John Dill said his company — and other oil and gas developers — fully intends to implement their own American energy plan.

“The country has waited long enough for a national energy policy,” Dill told attendees of the Wyoming Infrastructure Authority’s October meeting in Laramie. “So we’re going to take the bull by the horn and do it ourselves.”

(Petroleum Consumption, Production and Import Trends — click to enlarge)

Chesapeake Energy’s plan, “A Declaration of Energy Independence,” proclaims America’s “$400 billion a year” in foreign oil imports is “fiscally insane.” Toward American energy independence, Chesapeake created a $1 billion venture fund to convert transportation fleets from gasoline to compressed natural gas (CNG), aiming at the No. 1 driver for oil imports. The company invested another $150 million in Sundrop Fuels, which is developing what it calls a non-food biomass “green gasoline.”

“We believe American energy needs to be supplied 100 percent by domestic resources,” said Dill, director of Chesapeake’s corporate development and government relations.

With a huge presence in America’s current onshore drilling boom, Chesapeake Energy is the second largest natural gas producer in the nation. It’s recent acquisitions in the Denver-Julesburg Basin and Powder River Basin are part of an industry-wide shift toward developing shale oil.

And, Chesapeake is among many in the oil and gas industry touting an American energy policy, beginning with a lesser reliance on oil imports. This year the Western Energy Alliance (WEA), an industry trade association with more than 400 members, including Chesapeake, published its “Blueprint for Western Energy Prosperity.” The blueprint promises that by 2020 the West alone could supply enough domestic oil and gas “to produce more energy on a daily basis than the total U.S. imports from Saudi Arabia, Iraq, Kuwait, Venezuela, Colombia, Algeria, Nigeria, and Russia.” But it can’t be done unless we get rid of “redundant and burdensome government regulations and bureaucratic red tape,” according to WEA’s blueprint.

“Our blueprint shows that tapping the West’s natural resources could generate 70,000 new jobs, if only the federal government stopped adding more redundant regulations,” Kathleen Sgamma wrote in an Oct. 13 op-ed in The Denver Post.

The blueprint, Sgamma notes, doesn’t set out to make the case for 100 percent reduction in foreign oil imports. It makes the case for a game-changing break from those oil-supplying nations most out of sync with American interests. But the main thrust of the blueprint campaign is the message that a deliberately burdensome set of environmental regulations are being deployed against the industry, costing the nation tens of thousands of new jobs and a short road to “energy independence.”

But even industry analysts who don’t necessarily align themselves with environmental groups say the connection between environmental regulations and energy independence is usually overstated. And critics of the WEA and its blueprint campaign say it perpetuates a false notion that Americans must accept more environmental impacts on public lands in return for jobs and energy security.

Flaring takes place in the Pinedale Anticline Natural Gas Field in 2004. The Western Energy Alliance has created a "blueprint" which claims that by 2020, the West alone could produce more natural gas and oil than it's current imports from several top foreign providers. (Photo by William Belveal/Flickr — click to enlarge)

Chesapeake Energy’s Declaration of Energy Independence makes little mention of the fact that a percentage of America’s domestic natural gas will likely be marketed overseas long before our energy needs are met “100 percent by domestic resources.”

Industry watchdog group, The Checks and Balances Project, notes that domestic oil and gas drilling is more vigorous than ever; in October drilling peaked at a level not seen since the early Reagan administration. The U.S. rig count was 2,000 at the end of November, compared to 1,687 the same time a year ago, according to Baker Hughes.

That leaves little room to complain that the Obama administration is blocking the development of domestic oil and gas, said Matt Garrington, deputy director of Checks and Balances. Even in the West where the industry is closely regulated, some 7,000 permits to drill federal minerals still sit idle, and more than half of the federal minerals currently under lease by the industry still are not under development.

“I think it’s about a land grab,” Garrington told WyoFile. “They don’t have enough rigs to ramp up drilling in the Rockies like the Bakken (shale oil play in North Dakota). Really, this is about using the political climate to make a land grab and sit on millions of acres. It’s good for their books, it’s good for their investors.”

Energy Independence

In spite of the industry’s revolutionary increase in domestic oil and gas production, it still protests an allegedly anti-energy administration that is supposedly blocking the industry from reaching its full potential.

Part of the dynamic has to do with the fact that the current boom in domestic shale gas and shale oil drilling is happening mostly on private minerals (in North Dakota, Pennsylvania, Louisiana, Texas and Oklahoma), while complaints of a stifling federal regulatory bureaucracy center on the industry’s ambitions to tap oil and gas on public lands in the West.

(Lower 48 states shale plays — click to enlarge)

Wyoming, Colorado and Utah were in the lead on domestic natural gas growth for the decade preceding today’s boom. Many elected officials from these states make a link between regulations and the migration of drilling rigs from the Rockies to shale gas plays in the eastern U.S., and they promise to fight federal regulations on public lands in an attempt to bring the rigs back.

So, what if the industry were to be granted its wish of a moratorium on additional regulation and get a green light to drill unfettered by what WEA and others regard as regulatory over-reach? Would it actually result in getting America on the road to energy independence?

“The easy answer to that is no. It does not matter … Anytime you hear somebody — a politician or otherwise — speak of energy independence, that goes against the statistics,” said John Curtis, director of the Potential Gas Agency at the Colorado School of Mines.

A quick primer on oil imports and how domestic natural gas factors into the equation: The U.S. currently produces about 5.5 million barrels of oil per day, and it imports about 8.3 million barrels of oil per day. U.S. oil imports are primarily driven by demand for transportation fuels. To address that demand for transportation oil, American natural gas producers propose converting a large portion of our transportation fleet to CNG — requiring an infrastructure transformation many years in the making, and requiring federal policy changes to help push the transformation.

At present, our domestic natural gas supply plays a modest role in offsetting foreign oil imports. Many shale gas wells also produce a small stream of liquid condensate that’s sold into the oil market. In this manner, the increase of domestic shale oil and shale gas production combined has helped to soften demand for foreign imports of crude oil. According to the U.S. Department of Energy, the nation is currently importing about 11.9 million barrels per day — a 15.9 percent decline from our average 14.1 million barrels per day import rate in 2007. Crude oil and petroleum products are down more than 2.2 million barrels per day over the past four years.

University of Wyoming economics professor Timothy Considine, who has studied shale gas development, said that most of the decline is due to lower demand, which is down 1.3 million barrels per day from 2007 levels.  Domestic production of crude oil is up over 554 thousand barrels per day, almost 11 percent higher while natural gas liquids production is up over 353,000 barrels per day, nearly 20 percent higher than levels seen during 2007.

Replacing the entire 11.9 million barrels per day of foreign oil imports remains a significant task, said Considine. If future growth of U.S. crude oil and natural gas production continues at recent rates and with lackluster growth in demand, oil imports could decline another 3 million barrels per day by 2020.

Unless there’s a massive build-out of CNG infrastructure to convert our transportation fleets from gasoline — which many consider a worthy endeavor in a national energy policy — American natural gas will play a very minor role in U.S. oil imports. Notably, Chesapeake Energy isn’t promising that the gas it produces in the U.S. will stay in the U.S.

In a WyoFile interview, John Dill said that Chesapeake isn’t opposed to exporting domestic natural gas before America breaks its oil import habit. Chesapeake spokeswoman Kelsey Campbell later added that Chesapeake Energy has an obligation to its shareholders to seek the best market opportunities, which may soon include foreign exports.

After all, domestic natural gas has lingered below $5 per thousand cubic feet (mcf) and recently dipped to $3.11 per mcf, according to the EIA. It’s easy to understand why U.S. natural gas producers would want to sell the domestic product to Japan, China and Europe where buyers are paying nearly five times that price for imported natural gas.

(U.S. Natural Gas Reserves Summary — click to enlarge)

Rather than domestic natural gas, energy analysts say efforts to make America more energy independent has everything to do with oil. Still, many experts downplay the urgency and the notion America can, or should, become entirely free of foreign oil.

“The energy independence idea, from an economic standpoint, a lot of economists don’t feel it’s that relevant … because countries trade all of the time,” said Considine.

While a healthy domestic supply of oil protects a country from interruptions, oil remains a global commodity. Considine said he doubts America could ever increase oil production enough to replace all foreign imports — no matter what changes are made to regulations.

“The boom in the Bakken (shale oil) and Eagle Ford (shale oil) in Texas is coming on real strong. And on the horizon is eastern Ohio (Utica shale oil),” said Considine. “So the future looks pretty bright for U.S. domestic oil production. Whether it can replace foreign oil imports, that’s quite a stretch.”

What attracts drilling rigs?

Drilling rigs were not driven away by regulations. They followed the money.

Mike Chiropolos, lands program director for Western Resource Advocates, a Boulder, Colo.-based environmental watchdog group, said he believes the oil and gas industry continually overstates the link between regulatory reforms on public lands and whatever might be achieved in the way of American energy independence.

Grand Mesa, at the border of Utah and Colorado, is an area rich in oil shale. Analysts say production of the product is often seen as an opportunity to make a quick and certain return on investment, attracting drilling rigs to different regions across the U.S. (Photo by Doc Searls — click to enlarge)

WEA’s projection of a drastically more energy independent America by 2020 in exchange for regulatory reforms is really an attempt to justify expanded access to public lands, said Chiropolos.

“This whole cry for access, I really don’t get it,” Chiropolos told WyoFile. “A lot of industry’s economic challenges are of their own making; they overproduced and now there’s a glut of gas on the market in a weak economy. Part of the reason they’re sitting on a lot of (federal mineral) leases is because there’s just not a lot of demand to keep all the wells operating, let alone expand new drilling operations.”

Producers don’t like to talk about profit margin differentials between domestic plays, but shale gas plays such as the Marcellus in Pennsylvania are generally regarded as more attractive than tight-sands gas wells in the Rockies for a variety of reasons. Not only are the shale gas plays in the eastern and southern U.S. closer to the end-use markets compared to the Rockies, but in the shale gas formations you can drill just about anywhere and strike a lucrative resource, whereas in the West the resource is more geographically restricted.

The bottom line, according to market analysts such as Bentek Energy, is that the opportunity to make a quick and certain return on investment is what really attracts drilling rigs to different regions of the U.S. Drilling in the Niobrara shale oil formation in southeast Wyoming, for example, has been much slower than anticipated despite being a private mineral play free of those regulatory burdens that WEA claims are blocking rigs from the Rocky Mountain states.

Rather than developing a large expanse of the Niobrara across all of southeast Wyoming, operators here say it will be a long process of finding the “sweet spots” to concentrate development, which means the pace has been set almost entirely on geology and the price of oil. Not regulation. To a lesser extent, that also applies to natural gas development on federal lands in the West, according to Tom Sherman of Bentek Energy, whose clients include the “top firms in the energy industry.”

“Right now, it’s probably more economics and better opportunities outside the Rockies as opposed to regulations that really, really are hindering development in the Rockies. … If (natural gas) prices were where they were in 2008, you’d see a lot of those rigs coming back to the Rockies,” said Sherman.

“The Bakken oil shale, the economics are very good, and it’s similar in the northeast — the shale gas frenzy in the Marcellus is very economic, and they (industry) don’t have that type of opportunity in the Rockies yet,” Sherman told WyoFile.

There are other considerations when it comes to choosing where to drill that industry doesn’t readily advertise. Many operators in the Bakken, for example, are racing against the clock. Many of the private mineral leases fueling that drilling boom were struck nearly five years ago at $200 per acre — on five-year terms. Now those leases are about to expire, so the operators are in a frenzy to drill in order to keep the leases active at those current rates. If they don’t start a well on those lands before the leases expire, they have to renegotiate at much higher rates — up to an estimated $2,000 per acre.

Public Lands Battlefield

Industry does have a long and, at first glance, compelling list of complaints about federal leasing, permitting and regulatory stipulations in the West.

Federal mineral leases nominated for sale are often challenged administratively within the Interior and in court by environmental groups. Several major natural gas drilling proposals have been stuck in National Environmental Protection Act (NEPA) review processes for more than five years, and industry leaders complain that air quality standards have been a moving target for many years. Endangered Species Act protections for multiple species also restrict access to certain areas during different times of the year. This, combined with unpredictable weather in the West, creates limited drilling seasons and a planning nightmare for operators competing for rigs and other services.

WEA’s Kathleen Sgamma, and other industry leaders, often cite analysis by EnCana Oil & Gas USA that suggests current federal planning delays cost Wyoming 30,666 jobs annually. “If there were the political will to develop our oil and gas resources in the West, the (Bureau of Land Management) could find ways to get things done in a more timely manner,” said Sgamma.

But, clearly, it’s not federal regulatory delays alone that impede efforts to drill all available leases on public lands in the West. Sgamma concedes the industry is currently short on rigs and workers. The industry has launched workforce training programs, but America just doesn’t have 30,666 workers qualified to go to work in the industry in a short amount of time. Nevertheless, in the face of those problems, people in the industry express confident optimism.

“The drilling industry would meet it and exceed it,” said Patrick Hladky. And if all onshore rigs are busy, “We’d just build new ones,” he said.

Hladky, president of Gillette-based Cyclone Drilling, said in September that all 28 of his rigs were in operation — most of them in North Dakota where the Bakken oil play is putting a strain on the U.S. rig fleet. If you called to move a rig to a new location in the West, you would have to wait at least six months, he said.

As for the skeptics, environmental groups often note the fact that thousands of applications for permit to drill on federal minerals in the West are issued every year that are not drilled within the 2-year permit term — and many are never drilled. Central to the energy development on public lands debate is this; the industry nominates, and the BLM sells, oil and gas leases that companies never develop.

According to the BLM, some 75,192 leases on 57.6 million acres of federal minerals have been leased since 1969. These lease totals are higher than the actual acreage that BLM manages in Wyoming (BLM manages more than 17 million surface acres and 42 million mineral acres in Wyoming) because the figures reflect the fact that many federal lands are leased over and over again.

Yet only 6.5 percent of the leases sold and 5.3 percent of the acreage was actually developed into production, according to a recent BLM environmental assessment (page 8). Industry critics say it’s not regulation that holds the leasing-to-development ratio down so low, but rather operators historically lease more minerals than they intend to develop in order to explore and hold a position in case the markets rise.

As Industry and Science Evolve, So Too Must Regulation

Regardless of an administration’s politics, BLM officials say regulatory standards and stipulations necessarily evolve to follow the latest science and to address actual changes detected in air quality, water quality, surface conditions and in the health of wildlife populations. Advances in air quality modeling, for example, also require additional steps in planning and monitoring.

BLM and the Wyoming Department of Environmental Quality, for example, are now required to carefully scrutinize plans for drilling expansions in the Upper Green River Basin due to the industry’s role in dangerous ground-level ozone spikes in recent years.

The drilling seen here in Upper Green River Basin has been associated with regional spikes in ground-level ozone, prompting new requirements for federal agencies in reviewing expansion plans. (Photo by Wendy Shattil/Bob Rozinksi of the International League of Conservation Photographers — click to enlarge)

“We do we have more instruction regarding sage grouse protections, more instruction regarding inventory of lands that may provide wilderness characteristics,” said Wyoming BLM spokeswoman Beverly Gorny. But, she noted, some of the drilling projects delayed in Wyoming were revamped at the request of the operators because they expanded their drilling proposals.

Chiropolos, the lands program director for Western Resource Advocates, said responsible oil and gas operators who want to do business in the West for the long-haul ought to be careful what their lobbyists wish for. If a full-throttle pace of drilling were to spread across the West it would easily trigger a full listing of the sage grouse under the Endangered Species Act, he said.

A sage grouse listing, most stakeholders agree, would essentially shut down all new oil and gas activities on public lands in the West, in addition to agriculture, recreation and myriad other activities.

“They can publish blueprints and make abstract cases for more access, but what would really happen if we turned them loose?” said Chiropolos.

Darryl Watts, Wyoming BLM’s acting branch chief for fluid mineral operations, said, “In my mind the biggest thing that leads to leasing deferrals and other delays … is the greater sage grouse issue. It’s the biggest single reason why we defer lease parcels or don’t lease them at all.”

— Contact Dustin Bleizeffer at 307-577-6069 or dustin@wyofile.com.

(Banner photo by Travel Aficionado/Flickr)

REPUBLISH THIS STORY: For details on how you can republish this story or other WyoFile content for free, click here.

— If you enjoyed this article and would like to see more quality Wyoming journalism, please consider supporting WyoFile: a non-partisan, non-profit news organization dedicated to in-depth reporting on Wyoming’s people, places and policy.

Reprinted with permission from High Country News. Not for republication by Wyoming media.

On a brisk October day, Paul Christensen is helping harvest sugar beets on his southern Idaho farm. His work as a Cassia County commissioner keeps him busy, he says, but he still enjoys “playing in the dirt.” He’s not the only one: Cassia is among Idaho’s most productive agricultural counties. That’s partly why it has resisted Gateway West, a power line that would hook like a jack-o-lantern’s grin across about 1,100 miles of southern Wyoming and Idaho. Two utilities proposed it in 2007 to deliver up to 3,000 additional megawatts of power, including wind energy. Roughly half of the original route would pass through public land, but in Cassia, Christensen says, 75 percent would march across private, mostly agricultural property, where transmission towers can disrupt center-pivot irrigation and crop-dusting flights.

So Cassia County proposed routes away from irrigated fields and more concentrated on public land. In fact, the Bureau of Land Management — which oversees most of the public acres the project would cross — took an extra nine months to work with state and multiple local governments to develop alternate routes before starting a draft environmental review. Meanwhile, the utilities revised their application four times. Then came inconsistencies between how different BLM field offices handled the project, uncertainty over federal policy on the dwindling greater sage grouse (the line’s path crosses through the bird’s range), and disagreement between Congress and Interior Secretary Ken Salazar over his short-lived wildlands policy, which required the BLM to take stock of its wilderness-quality lands and protect appropriate areas from development. These and other factors have delayed the project’s already gigantic and complex federal permitting process by two years so far.

Gateway West’s tale is hardly unique. Because they cross through so many jurisdictions, transmission lines have to navigate the varying requirements of everything from federal, state and tribal agencies to local governments and private landowners who may not benefit from the line’s power. (Gateway West alone is subject to at least 34 different agencies, some of which require multiple permits.) On average, the process can take around five years, says Lloyd Drain, executive director of the Wyoming Infrastructure Authority, not including the two or so additional years needed to negotiate rights of way with private landowners and actually build the lines. But even as people wrangle over where projects should go, the electrical transmission grid is aging, with no significant buildout in the West in decades. Experts say it needs updating to increase reliability and capacity to meet growing consumer demand. Not only that, but large-scale development of renewable energy in places like Wyoming’s windy high plains and the Southwest’s unrelentingly sunny deserts has been stymied in part by a lack of transmission to population centers.

Seeking solutions, the Obama administration announced Oct. 5 that it had selected seven proposed power lines — including Gateway West and four others in the West — to serve as pilot projects for its new Rapid Response Team for Transmission. It’s the latest in a series of steps this administration has taken to address the grid-lock, mostly through encouraging cooperation among agencies and electricity planners. The goal, says Steve Black, counselor to the Interior secretary, is to “transform the way transmission is built in this country.”

The Rapid Response projects are essentially a more focused version of an interagency collaboration on transmission issues created in 2009. The effort taps nine federal departments, including Interior and Energy and the Federal Energy Regulatory Commission, and will reach out to state and local authorities, all to better coordinate permitting processes and set tighter, more ambitious schedules, moving lines forward without neglecting environmental reviews. “We’re trying to not just do what we did before, faster, but to actually figure out whether the federal evaluation can happen in a different way,” says Lauren Azar, senior advisor to the Energy secretary,
All the Western lines chosen as pilot projects “are strategic backbones for unlocking wind, solar and geothermal,” adds Black, and each presents a unique set of challenges, from endangered species issues to conflicts with military facilities, that the team hopes to learn from.

Walt George, Gateway West’s BLM project manager, says that lessons from the line’s delays have already been successfully applied to other projects. After taking extra time to accommodate late-coming local governments’ routing proposals for Gateway West, the agency decided that it could save time in the future by sending individual notices to all property owners who might be affected before the scoping process even starts, tedious as that sounds. This spring, the BLM tried the approach with Transwest Express, another pilot project that would carry wind power from Wyoming to southern Nevada and California, and was able to avoid similar delays.

Other administration efforts are more sweeping. This summer, FERC adopted Order 1000. Among other things, the rule ensures that only power customers who benefit from new lines pay for them in their electrical bills. It also requires transmission owners — who have historically proposed lines based only on their own needs — to collaborate with each other on regional plans.

“A more integrated grid is really part of what we’re after from an environmental perspective,” says Carl Zichella, Natural Resources Defense Council director for Western transmission. There are 38 grid operators in the West; better planning among them could reduce overall requirements for new infrastructure, lessening the environmental footprint of grid updates and ensuring important work is completed more quickly, he says. It will also make it easier to balance intermittent renewable power sources — wind power from California supplementing wind power from Wyoming, for example — enabling much more renewable energy to enter the grid.

“I’m impressed with the things I’ve seen out of D.C. with respect to permitting and siting this past year,” says Drain. If improved agency coordination through the pilot projects speeds up the review process even by multiple months, he says, “that’s going to do wonders.” It would certainly be good news for Gateway West, which Idaho Power and Rocky Mountain Power hope to build between 2015 and 2018.

“If there are ways we can make these processes go any more smoothly, we need to try to do that,” agrees BLM’s George. On the other hand, Gateway West has inevitable and significant impacts, and “we’ve got people with really exact expectations of what this process should produce. That means more time and larger volumes of information.” A truly thorough review of a project so big will never be that speedy, he says, even if it becomes more efficient: “You don’t rush the public if they don’t want to be rushed.”

(Banner photo by Rebecca Stanek)

Art is science made clear.

—Wilson Mizner

The business of art is to reveal the relation between man and his environment.

—David Herbert Lawrence

A work of art is 2½ million times more noticeable than an open pit coal mine.  I base this on the physical sizes of—and political responses to—Chris Drury’s “Carbon Sink: What Goes Around Comes Around” on the University of Wyoming campus and the Black Thunder coal mine in Campbell County.  The coal mine is a monumental sculpture (broadly construed) visible from 700 miles above the Earth; Drury’s art installation fits into a single 270 square-yard pixel on Google Earth.  But if you really want to see human handiwork from outer space, check out the swaths of beetle-killed forests stretching across 4,800 square miles of the West.  Of course, that would be a rather environmentally sly use of imagery—which is precisely what Chris Drury was up to in using beetle-killed trees to form a vortex at the center of which is a pile of coal.

Chris Drury's "Carbon Sink" as installed on the University of Wyoming's campus. The 36-foot diameter piece of art, composed of scorched wood felled by pine beetles, has created a controversy: how much sway should politicians and industry representatives have over academic freedom? (Photo courtesy of Chris Drury — click to enlarge)

The point of “Carbon Sink”—or at least the message that the politicians and energy industry drew from the installation—was that burning fossil fuels pumps carbon dioxide into the atmosphere, which is warming the climate (which is an intolerable scientific discovery), which has led to higher winter temperatures, which are insufficient to kill off the outbreak (which was fostered by drought and forest management practices), which results in mountainsides covered in dead trees. And to take this one step further, a recent study in Canada revealed that the decomposition of the trees is further adding to atmospheric carbon, making the winters warmer which means—well, you get the picture.  Or at least the power brokers get the picture.

In a  melodramatic response to the artwork, Marion Loomis, executive director of the Wyoming Mining Association, asserted that the University of Wyoming, “put up a monument attacking me, demonizing the industry.”  Loomis claimed to understand academic freedom, but intimated that liberty has a price. State representative Tom Lubnau from Gillette employed the same sort of roundabout threat: “While I would never tinker with the University of Wyoming budget—I’m a great supporter of the University of Wyoming—every now and then you have to use these opportunities to educate some of the folks at the University of Wyoming about where their paychecks come from,”  (Translation: I’d sure as hell tinker if these uppity artists and impertinent eggheads continue to misbehave.)

All of this leads one to wonder how a small work of art in a corner of a university campus could warrant such outrage. Could the hegemony of Wyoming’s energy industry really be threatened by an elegantly arranged spiral of burnt logs? This whole hullaballoo could be the old ploy of powerful industrial interests playing the victim, but that explanation is too easy.  I suspect that the panic was overblown but real. And it arose from Drury’s subversive work being featured in an educational setting.  The university is corrupting the state’s youth — and we all know what happened to Socrates (hint: hemlock).

*     *     *

Anyone who has a soft spot for the underdog has to be doubly tickled by the fallout over “Carbon Sink.”  Most obviously, the Goliath of the fossil fuel industry was thumped between the eyes.  Even more delightful is that the rock was a piece of art.  Not a regulation, or a lawsuit, or a technical report (e.g., an unflattering analysis of water and coal-bed methane) but an evocatively named arrangement of scorched wood.  Of course, it’ll take a much larger aesthetic stone to do any lasting damage to Big Coal.

Satellite photo of the Black Thunder coal mine, which spans some 50 square miles in Wyoming’s southern Powder River Basin. (click to zoom)

In addition to admitting my deep feeling of schadenfreude, I should also make two other confessions.  First, I had a lovely, long visit with Chris Drury when he first came out to Wyoming.  And I just might’ve given him the idea about the beetle-forest-coal-climate connection.  You’ll have to ask him about the details.  Second, although I came to UW as an entomologist, my position is now split between philosophy (where I work on natural resource ethics and philosophy of ecology) and the Master of Fine Arts program in creative writing.  So in terms of full disclosure, I fancy myself something of a literary artist.

Having worked in the sciences, humanities, and arts, I admit to some frustration when the latter two endeavors are dismissed as frivolous or largely irrelevant to modern life.  This past spring, a university committee of scientists was trying to figure out if and how the arts and humanities could offer anything of value to an initiative concerning biodiversity conservation.  There was something of a dog-and-pony show to explore the possibility, but there wasn’t much evidence that the scientists were convinced.  And then along came “Carbon Sink.”

I suggest that those who doubt the relevance of art to contemporary society consider that Chris Drury might have done more to catalyze a serious conversation about energy, ecology, and climate change than any technical report or research paper produced by the university.  And the same goes for those who cut the arts when school funding gets tight—and for those parents who wring their hands when their kid declares a major in art (or theater, dance, philosophy, English, or history).  Turns out that art matters.

The irony, of course, is that it took a British artist to stimulate Wyoming politicians.  At least we can hope that Governor Mead’s efforts to develop a state-level energy policy might include a recognition that burning fossil fuels has regional, national and global ramifications.  Wyoming’s policy will affect others in profound ways.  If it is “our” coal and gas, then it’s also “our” carbon dioxide—and “we” see both lucrative profits and dying forests.

*     *     *

The tradeoff between wealth and beauty is a lesson worth teaching to our children, which brings me to the another political consequence of “Carbon Sink” and other  works that provide social commentary (such as the seditious documentary film, Gasland). Wyoming’s Joint Minerals Business and Economic Development interim committee recently took up the matter of energy education.  The idea is to develop an “Energy Literacy Education Program” for K-12 students.  Two important concepts emerged from the committee’s September 12^thmeeting in Casper.

A few red-needled pines, infested with bark beetles, rim a soggy meadow in the Medicine Bow National Forest. (Photo by Josh King with aerial support from LightHawk Aviation — click to enlarge)

First, the model for our venture is to be Oklahoma’s energy education program.  It seems that Sen. Eli Bebout of Riverton is a real fan of the Sooners’ approach to education.  Given that I teach natural resource ethics, I have a vested interest in seeing what students will have been taught when they arrive on campus.  It looks like my job is not going to get any easier.

At the Oklahoma Energy Resources Board website, one is introduced to the educational program with a video of teachers singing the praises of the Board.  The state has cut teachers’ supply budgets to zero, so the educators fawn over the boxes of cool stuff that the energy industry provides for “free.”  The teachers seem blissfully unaware that if their state increased severance taxes to the level of neighboring Texas, perhaps there’d be enough state revenue to provide funding for classroom supplies.  Then the teachers might not have to settle for the “free” things provided by the energy industry and they could decide to purchase art supplies.  We can only imagine what might happen if the kids were able to think about their world and creatively express their hopes—and concerns—without the oversight of the energy industry.

If anyone wonders whether such an educational program in Wyoming might be just a tad tilted toward the views of industry, visit the Campbell County School District website dedicated to the Powder River Coal Company.  Sixth graders from the gifted-and-talented program put this site together, and they’re certainly a capable bunch.  The text is well-written and the design is quite professional.  But try clicking on “Environmental Issues.”  You’ll learn that PRCC’s low-sulfur coal is better for the air, that coal mines comply with the Clean Water Act and the Surface Mining Control and Reclamation Act, and that, “Powder River Basin coal mines provide a kind of refuge for wildlife.  Besides creating animal habitat with rocks and dead trees, the coal mines protect the animals that are living on the mine site [from hunters].”  Coal mining appears to be just about the best thing that could happen to the environment.  As for the effects of carbon dioxide on the climate, there’s not a peep.  Maybe it’s time for a school field trip down to the UW campus to check out “Carbon Sink.”

The other important concept to emerge from the committee meeting was framed by Lara Ryan, executive director of the Wyoming Land Trust.  It seems that the core message to our children will be: “Energy and conservation are not at odds.  Rather they are mutually beneficial…We can have it all.”  This might be true, depending on who “we” are.  If it includes today’s K-12 students, then having it all isn’t so simple. “We” (adults) seek to have it all by externalizing costs—shifting our problems onto “them” (the children and future generations).

The core reality of the modern world of energy consumption is that we can’t have it all.  My mother was an artist and wise woman.  When people asked her to produce a calligraphic piece, she would tell them that there were three qualities in commissioned artwork: good, fast, and cheap.  The client could pick any two of these.  For example, if a bride-to-be wanted her wedding invitation to be good and fast, then it wasn’t going to be cheap.

The same limitations hold for energy.  Pick whichever two you want, but you can’t have all three.  What is good (for humans and the environment) and fast (available right now) isn’t cheap (e.g., solar home systems).  What is good and cheap isn’t fast (e.g., large-scale alternative energy systems), and what is cheap and fast isn’t good (e.g., burning fossil fuels).  No, you can’t have it all.  Even an artist knows that.

*     *     *

Philosophy and art come together in the field of aesthetics.  And environmental aesthetics is a rich interaction of science, philosophy, and art.  The great ecologist Aldo Leopold wrote: “Our ability to perceive quality in nature begins, as in art, with the pretty. It expands through successive stages of the beautiful to values as yet uncaptured by language.”  His concept has since been framed in terms of ‘thin’ beauty, which appeals to our superficial sense of what is pretty, and ‘thick’ beauty, which arises from our understanding of what lies deeper.  The Tetons are postcard pretty to anyone who sees them, but when one understands the geological forces that pushed the mountains skyward and the ecological zones that are layered on the slopes, then a thick sense of beauty emerges.  It’s the difference between listening to a lovely sonata and knowing the musical theory, historical context, and composer’s anguish that lie behind the composition.

Mountain pine beetles, roughly the size of a rice grains, spend most of their lives feeding under the bark of pines. At certain times of year, the beetles, en masse, take flight to find new trees to infest. (Photo by Jeff King — click to enlarge)

Many people are aesthetically offended by wind farms, although some find the form and motion of windmills to be elegant.  In either case, the initial impression is just that—a hasty judgment.  Understanding the marvelous complexity of engineering deepens one’s appreciation.  But what makes these structures beautiful in my estimation is understanding that each day a windmill turns on the high plains of Wyoming, 4 tons of coal that are not incinerated—and each year a windmill churns means 4,300 tons of carbon dioxide do not enter the atmosphere.  Now that’s a beautiful thing.

Perhaps we should be ethically offended by coal mines and gas wells, or at least by the fact that Wyoming has extracted such wealth while spreading the costs of burning fossil fuels into the future and around the world.  Maybe it’s a good thing that our views are interrupted by windmills and that we won’t derive enormous riches from this energy source.  Justice entails that we bear some of the burden—whether aesthetic or economic—of energy production.

Windmills are conspicuous.  And that’s good.  For too long Wyoming has externalized the costs of energy.  Rather than shoving the aesthetic costs of energy into places where most of us don’t have to see the ugliness, or spreading health costs across the planet via the atmosphere (sick people aren’t very pretty), or pushing the environmental costs into the future when we don’t have to confront the unpleasant consequences of rising sea levels, windmills make us face up to our consumption and complicity.  If carbon dioxide was colored a sickly chartreuse rather than being invisible, we might be much more pleased to see windmills.  Of course, there’s another way of making the costs of burning fossil fuels visible—go look at the dying forests in the Rockies.  Or perhaps just check out Chris Drury’s artwork tucked away in a corner of the UW campus.

Some pretty things become beautiful when you know the deeper story, but not always.  I remember as a kid seeing a pretty, swirling rainbow along the edge of a lake and later learning that this was an oil sheen.  The truth isn’t always pretty; sometimes knowledge makes the world a disturbing place.  Merely ugly things can become truly awful when we learn more about their appearance—as with the beetle-killed forests of Wyoming.  The thin sense of ugliness gives way to a thick sense of awfulness when we understand our role in the insect outbreak.

*     *     *

After the executive director of the Wyoming Mining Association claimed that his industry had been villainized and victimized by art, Mr. Loomis went on to insinuate that corporate  monies to the university were put at risk by the artwork.  After all, students could be led to ask hard questions (remember Socrates?).  Given that political pressure worked to shut down a photography exhibit that offended the oil and gas industry (“The New Gold Rush: Images of Coalbed Methane,” at the Nicolaysen Museum in Casper) and political extortion worked to shape university policy with regard to unwelcome political views (i.e., the Bill Ayers debacle), Loomis’ warnings are understandable if profoundly disappointing.  Of course, he hadn’t actually seen the artwork when he made his threat, but it seems that empirical evidence isn’t all that important when it comes to energy education in Wyoming.

A detail of ‘Carbon Sink’ as it is being installed. The sculpture is composed of timber felled by pine beetles. (Photo by Chris Drury — click to enlarge)

Loomis suggested that the university might, “put up a sculpture commending the affordable, reliable electricity that comes from coal on the other end of Prexy’s Pasture.”  Perhaps Mr. Loomis has a good idea.  But as much as education is touted by the energy folks, they don’t seem to be fast learners—at least when it comes to the subversive disposition of art.  An artist with a keen sense of irony might be tempted to integrate the two messages.  For example, s/he might install an electric light to illuminate Drury’s work.  Leaving the light on continuously would convey to the viewer a sense that thanks to cheap electricity we believe that we can have it all.  And perhaps it’s only fair that the energy industry would get to shed some light on “Carbon Sink,” given that the art did such a fine job shedding light on the energy industry.

*     *     *

Coda

As for representative Lubnau’s admonishment that, “you have to use these opportunities to educate some of the folks at the University of Wyoming about where their paychecks come from,” I’m well aware that my salary is largely provided through mineral revenues—and this is exactly why I was compelled to write this piece.  That, along with a real appreciation for the challenge issued by Academy and Tony Award-winning director Elia Kazan: “The writer, when he is also an artist, is someone who admits what others don’t dare reveal.”

— If you enjoyed this essay and would like to see more quality Wyoming writing, please consider supporting WyoFile: a non-partisan, non-profit news organization dedicated to in-depth reporting on Wyoming’s people, places and policy.

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Companies plumbing the Niobrara formation in hopes of spurring a new shale oil play in Wyoming likely will not be allowed to waste large volumes of state-owned natural gas that sometimes mingles with the oil during initial production.

State and industry officials met Monday in Casper for an informal, public discussion on the matter. Both parties appeared to agree that royalty-free “flaring” — or setting natural gas ablaze — could be held to a limit without hurting the economics of exploratory drilling in southeast Wyoming.

Natural gas is flared in the background in the Pinedale Anticline gas field. Flaring is a common practice in preparing a new oil or gas well for commercial production. (Dustin Bleizeffer/WyoFile — click to enlarge)

But exactly how long and how much gas is flared before state royalties are applied to the gas wasted must still be determined by the State Lands and Investments board, which is made up of Wyoming’s top five elected officials.

“What I can’t have is a high volume of high Btu (British thermal heating unit) gas going up the flare stack and not getting revenue from it for state beneficiaries,” said Ryan Lance, director of the Office of State Lands and Investments.

The State Lands and Investments board is charged with the fiduciary responsibility of maximizing the state land trust and generally maximize revenue from those state-owned assets. Revenues from state lands, including state-owned oil and gas, are dedicated almost exclusively to fund Wyoming schools.

“The policy behind our interest is we don’t get another shot at this gas stream. After it goes up the flare stack it’s gone,” said Lance, referring to the fact that natural gas is a finite resource.

The agency’s staff recently recommended the board set a 30-day limit on royalty-free gas flaring, and they noted that some flaring is necessary to determine whether a well, or a state lease, can produce commercial volumes of oil or natural gas.

Joe Icenogle, director of environmental affairs for Fidelity Exploration & Production Co., suggested a 180-day royalty-free period ought to give producers enough time to make a determination on commercial productivity and to make long-term plans for capturing and selling gas and oil that flows from a well.

“Equally, in that beneficial interest argument (state royalties for Wyoming schools) is you want industry to explore state leases and not have those be the last ones they go to,” said Icenogle.

In other words, industry doesn’t want the royalty-free flaring period to be so short that an operator cannot determine the commercial viability of a well or group of wells.

When drilling into shale oil formations, a fair amount of natural gas and petroleum condensate (liquids) stream up the well bore with the oil for many days before steady oil production begins. Particularly in exploration or the early stages of a new oil play, there are not pipelines available to capture the gas for commercial sale, so the byproduct is flared until the finite resource is exhausted or facilities are constructed to capture gas and liquids for sale.

There’s a notable lack of pipeline infrastructure in southeast Wyoming where there has not been much oil or gas activity.

Lance said that lack of pipeline infrastructure is a concern. The current exploratory phase of Niobrara shale oil drilling is spread across all of southeast Wyoming, and it could be a long time before producers — acting independently — convince pipeline companies to invest in the gathering and transportation pipelines to take all the products to market.

So far, there’s not a large volume of state gas flared in the Niobrara play — less than 1.7 million cubic feet of gas per day (Mmcf). But state officials want to get ahead of gas flaring before it snowballs into a larger waste, like the estimated flare of 270 Mmcf per day, according to one estimate, in North Dakota’s Bakken oil shale play.

Industry representatives also noted that much of the natural gas flared after a well is drilled is mixed with other constituents and doesn’t meet gas pipeline specifications, so applying a market rate to those volumes of flared gas might not be fair.

In reference to supposedly “wasted” gas, Steve Degenfelder of Double Eagle Petroleum said, “I hope we use the word wast very sparingly.” Degenfelder said he wasn’t convinced that natural gas, without a pipeline connection to markets, has a value at all.

Dan Neal, executive director of the Equality State Policy Center, asked that Office of State Land and Investments board make its determination regarding royalty-free flaring in a public manner.

— Contact Dustin Bleizeffer at 307-577-6069 or dustin@wyofile.com.

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Reprinted with permission from Environment & Energy Publishing, LLC. Not for republication by Wyoming media.

Interior Secretary Ken Salazar signed an order yesterday that would tuck the Office of Surface Mining into the sprawling Bureau of Land Management.

Salazar told Interior Department employees at a meeting his goal is to strengthen OSM’s oversight of coal mining and reclamation by combining the smaller regulatory agency with the more muscular BLM, which manages roughly 250 million acres concentrated largely in the West.

Among other benefits, officials said the combined agencies would have more clout in Capitol Hill battles over funding.

“I think it will be easier for us to be able to do that when we are dealing with a larger organization when we have OSM and BLM working together,” Salazar said. “OSM is here today and will continue to be here in the future.”

The order will take effect Dec. 1, following consultation with the White House, Congress and workers, Interior officials said. Deputy Secretary David Hayes will work with BLM Director Bob Abbey and OSM chief Joseph Pizarchik to develop a reorganization schedule.

“This is not about having an agency have its people kicked out the door,” Salazar told employees. “That is not what is going to happen here.”

He added, “We’re going to come out of this stronger a year from now than we are today.”

The reorganization will focus on merging administrative functions, notably communications and human resources, Interior said. The order also calls on the offices to combine mine reclamation oversight and fee collection.

“The secretary has asked us to build on our strengths by looking at how we can best integrate certain functions with the BLM,” Pizarchik said in a statement, “so that we are making the most effective use of limited resources.”

Salazar acknowledged staffing crunches at OSM, which currently has about 500 employees. The agency is responsible for overseeing coal mining and reclamation; it mostly supervises state and tribal regulators.

OSM’s 2011 budget appropriation is about $160 million, compared to more than $1.1 billion for BLM, which has about 10,000 workers. President Obama and lawmakers have proposed more cuts to OSM.

Reaction trends negative

Republicans reacted angrily about not being briefed on the plan ahead of Salazar’s announcement.

“If this was a legitimate effort to streamline government and save money, I must question why this decision was made without consultation with the public or Congress,” House Natural Resources Chairman Doc Hastings (R-Wash.) said in a statement.

Lawmakers will question Pizarchik next week when he appears before the Energy and Mineral Resources Subcommittee.

“BLM and OSM have separate duties and responsibilities that each help generate revenue for the federal government and support job creation,” Hastings said. “Any action that could diminish their ability to effectively and efficiently do their job could cause serious harm to our economy.”

A former Interior official, who asked to remain anonymous, questioned the logic of the merger.

“Where’s the consistency if your same perspective is that surface reclamation of coal, and [abandoned mine lands] and administering the fund is intertwined nicely with wilderness, wild horses and burros, wild and scenic rivers, oil and gas and renewable energy?” the former official said.

Interior officials say their aim is to follow the 1977 Surface Mining Control and Reclamation Act, which led to the creation of OSM.

“OSM and the BLM have many complementary responsibilities with respect to mining and the reclamation of mine lands, and it makes sense to explore how we can bring the best out of the two bureaus as they carry out their statutory responsibilities,” Abbey said in a statement. “Examining new organizational structures can be challenging, but we must be open to new ideas and new ways of thinking about how to make government work better.”

Rep. John Garamendi (D-Calif.), who was a deputy Interior secretary under President Clinton, said in an interview that a previous reduction in Interior staff hadn’t hurt the department.

“A good administrator will make sure everything gets done,” Garamendi said. “I’m not concerned about it.”

Streamling permits, building trust

The mining industry is hoping a reorganization means a more streamlined permitting and oversight process. Leaders say they also want to make sure states keep significant regulatory powers under SMCRA. They are actively fighting OSM’s forthcoming stream protection rule.

Earler this week, former OSM Director Kathy Karpan called the merger a “lousy idea” in an interview from her office in Wyoming. “In the scheme of government fat,” she said, “OSM is one of the tiniest little targets you can take aim at.”

Karpan, who served between 1997 and 2000, said OSM was working on a “skeleton staff.” “It’s a little tiny entity that would be lost at BLM,” she said (E&E Daily, Oct. 26).

Environmentalists, on the other hand, want to see a stronger OSM. Many activists have never trusted Pizarchik, even as he reiterates his commitment to the controversial rulemaking.

“For many years, despite its very reason for being, [OSM] has been more of a coal industry lapdog than a watchdog, and that’s continued during this administration under Director Pizarchik,” Joan Mulhern, senior legislative counsel for Earthjustice, said in a statement.

“Sometimes a reorganization and a shakeup can help,” Mulhern said, “but unless the agency and its leadership have the political will and resolve to do their job and work for the citizens of America as opposed to the corporations, it doesn’t really matter what bureaucratic box you stick them in.”

Click here to read the Interior Department secretarial order.

Click here to read an Interior Department question-and-answer document.

Land developers Jeff Meyer and Michael Fraley originally proposed to build a giant wind farm on the Pathfinder Ranch near the Oregon Trail in central Wyoming. Instead, the project will be moved to a windswept farming area of Platte County in the southeast part of the state.

As they work on the wind farm project near Chugwater, they are also pursuing a potential environmental mitigation bank back on the Pathfinder ranches in central Wyoming. Improvements on the ranch are intended to compensate for the environmental impacts of new industrial development in Wyoming, including the future wind farm near Chugwater.

Neighbors bring their horses to the Pathfinder Ranch's annual Pathfinder Days celebration. (Dustin Bleizeffer/WyoFile — click to enlarge)

Meyer and Fraley are co-founders of Pathfinder LLC, a company that bought the expansive Pathfinder ranch, and several adjacent properties, about 50 miles southwest of Casper. Their decision to relocate the wind farm and pursue a mitigation bank is a prime example of how wind and other energy developers must adapt to a regulatory landscape where decades of environmental impacts present challenges — and opportunities — for future development.

Avoiding ‘Core Areas’

The wind farm and mitigation bank are headed by two Pathfinder subsidiaries; Pathfinder Renewable Wind Energy LLC, and Pathfinder Conservancy LLC. Pathfinder Renewable Wind Energy has development contracts with the Bordeaux and Slater wind associations, which formed in the last few years to address wind siting issues. These landowner groups control tens of thousands of acres along the Chugwater Creek valley south of Wheatland.

Fraley said the company moved the wind farm from Pathfinder to Chugwater due to several factors.

View Chugwater – Pathfinder in a larger map

Maps show that Platte County contains some of the best wind in the state. The heavily farmed area also lacks sage grouse “core areas” — a state-level designation that includes development restrictions on Wyoming’s prime sage grouse habitat. The presence of sage grouse core areas on the Pathfinder ranches in the Sweetwater region could have circumscribed the project.

But sage grouse were only one factor in the company’s decision to relocate, according to Fraley. Building wind turbines on private wind association land eliminates some of the permits that would have come with siting on leased federal and state lands in central Wyoming.

Most importantly, according to Pathfinder officials, was access to interstate transmission to get the wind energy to out-of-state customers. TransCanada’s proposed Zephyr transmission line will originate near Wheatland, providing the vital link to send power across Utah and Nevada to end users in southern California.

Making Good Here for Impacts There

Back on the Pathfinder ranches, Meyer and Fraley are moving forward with their plan of turning much of the area into an enormous mitigation bank along the Sweetwater and North Platte rivers.

Fraley said a mitigation bank was always part of the plan for the Pathfinder Ranches. It was part of the strategy he and Meyer brought with them when they moved from Jacksonville, Fla., to put Pathfinder LLC together in 2007.

The mitigation bank will contain parts of Pathfinder LLC’s 54,000 acres of deeded ranch land plus its 196,000 acres of BLM and state leases, along with 150,000 acres owned by neighboring ranchers. Fraley said the mitigation bank might end up being one of the largest in the nation.

Mitigation banks have been popular in other parts of the country since the 1990s, including in Colorado and Montana.

But Pathfinder LLC is one of the first two companies to start such a bank in Wyoming.

According to the EPA, federal agencies created mitigation banking as a way for developers to transfer the responsibility of offsetting their environmental impacts to a third party. Mitigation banks generate credits by improving wetlands and wildlife populations on lands within the bank, and then selling those credits to developers working elsewhere. Federal agencies set the standards for awarding credits to banks, and use permits to dictate how much compensatory mitigation developers must conduct. The credit sales pay for the habitat investments and along with some profit for the bank owner.Click herefor more information about mitigation banking.

The other company is Florida-based Rock Creek Capital, which has started the permitting process for its Cross A Ranch Mitigation Bank near Encampment.

Fraley has spent the last few years investing millions of dollars in studying the wetlands and wildlife habitat on the Pathfinder Ranches. The backing came from Houston-based Sammons Enterprises, a private company with more than $40 billion in assets.

The idea is to improve riparian areas and increase wildlife populations in the bank to offset industrial impacts elsewhere.

If all goes as planned, wetland and habitat improvements at Pathfinder Mitigation Bank will generate credits that meet the approval of the U.S. Army Corps of Engineers. The Corps of Engineers will then make those credits available to developers who create industrial impacts within a defined Geographic Service Area in the state.

Fraley expects to sell mitigation credits to wind farms, oil and gas companies, residential developers, and highway projects. Companies often buy these credits to speed the permitting process and transfer the risk of managing their mitigation to an outside group. Otherwise, developers would be responsible for mitigating their own impacts to comply with the Clean Water Act and the Endangered Species Act, a time-consuming and costly alternative.

Pathfinder Conservancy plans to recover its mitigation investment by selling credits to other developers. But it is also creating the bank to cover impacts from the proposed wind farm near Wheatland.

“We are going to analyze the wind project and design [it] to avoid impacts,” said Fraley. “In the event that there is an unavoidable impact we would definitely … use credits from our bank to mitigate impacts.”

That plan, however, is contingent on Pathfinder Mitigation Bank getting approval for a large Geographic Service Area that would allow environmental improvements on the west side of the Laramie Range to offset wind development impacts on the east side of the mountains.

Watershed boundaries usually dictate Geographic Service Areas for mitigation banks. Since Pathfinder Ranch and the wind project are both within the North Platte River drainage, the connection between bank and wind farm is possible, under rules in Section 404 of the Clean Water Act.

But while benefits from wetland improvements extend to the entire downstream drainage, critics are quick to point out that it doesn’t always work the same for wildlife.

“It’s very hard to mitigate in another location and actually increase the wildlife populations in other areas,” said Erik Molvar, biologist with the Laramie-based Biodiversity Conservation Alliance.

Wildlife disadvantaged by degraded habitat on one side of the Laramie Range, for example, would be unlikely to benefit from improvements on the Pathfinder Ranch on the other side of the mountains.

The first phase of the mitigation bank will focus on improvements to waterways to allow fish to return up waterways as they had before settlers began altering them. Eventually, the effort will expand to improve sage grouse habitat in an attempt to increase sage grouse numbers on the Pathfinder ranches. But for those improvements to generate mitigation credits, they would have to meet strict scientific standards laid out by the Corps of Engineers. The same would apply to species like mule deer or golden eagles.

Pathfinder Ranch corrals. (Dustin Bleizeffer/WyoFile — click to enlarge)

“But we are years from being able to validate those things,” Fraley said. “Until you can validate our ability to improve those habitats and species, we won’t be permitting [wildlife banks], because no [agency] would approve it. You have to have a strong scientific buy-in from all the interested parties before you can do that.”

For now, the company is preparing permitting documents “based on known and accepted science from around the globe.” Onsite inventories will provide more information as it is collected.

While Pathfinder officials believe their proposal fits within the regulatory framework, there is still the question of how it will sit with landowners, sportsmen and others who have a stake in the North Platte River drainage. Does it make sense to impact public lands or waterways in Platte County and make up for that with improvements on the private Pathfinder Ranch three hours drive to the west?

Slater Wind Association member Gregor Goertz said he didn’t mind that Pathfinder’s mitigation bank would be located 150 miles from the wind farm. “It really doesn’t matter to me. It’s crazy to me that they have to do [mitigation],” Goertz said. “In Pathfinder’s long view, they’ll do mitigation efforts [over there] to offset any impacts in this area. But as landowners we don’t think they’ll have any impacts.”

The New Neighbors

The Pathfinder name has a long history in central Wyoming, stretching back to John Fremont and his 1842 expedition to survey the route up the Sweetwater River to South Pass. The well-watered wagon route over the Rockies removed obstacles to emigrant trails and opened development of the West.

Pathfinder Renewable Wind Energy gets its name from John Fremont, who surveyed the Sweetwater Valley in 1842. (Courtesy USGS — click to enlarge)

Pathfinder LLC has a much shorter history in the area, but it also hopes to open the door to new development in Wyoming.

Michael Fraley started his career as a real estate developer near Jacksonville, Fla., where he worked on a variety of projects including low-income housing, mitigation banks, and mixed-use developments. At one time Fraley worked for Devlin Group, but he left that company several years ago.

Fraley says Pathfinder LLC uses many of the same skills from his previous career. “It’s just a big real estate deal. You have to remember that. It’s having a large tract of land and determining what the best use is for that land.”

Fraley met Pathfinder LLC co-founder and director Jeff Meyer when growth on outskirts of Jacksonville encroached on Meyer’s tree farms. Meyer put together his land with Fraley’s real estate knowledge to convert a tree farm into a 1,000-acre development.

Meyer grew up in the Amana colonies of Iowa, an area settled by a religious community of German immigrants who practiced a communal life until the 1930s. The group placed a strong emphasis on self-sufficiency and the practice of craftsmanship. Meyer’s grandfather was the founding owner of Amana refrigeration, which produced upright freezers, air-conditioners, and microwave ovens after WWII.

Fraley said Meyer decided to follow his entrepreneurial instincts instead of working for the family company. Meyer moved to Florida and established the Historic Tree Nursery, which cultivated seeds from famous American trees like the Lewis and Clark Cottonwood and the George Washington Tulip Poplar. He later published a book on the subject, and helped found the America’s Famous and Historic Trees Project.

Pathfinder LLC’s Wyoming projects combine Meyer’s interests in community, history, land, and wildlife. “My best friend moved to Dubois, so I was coming up doing elk hunting with him. Obviously it’s windy. I thought, ‘This would be a great opportunity to do something significant,’” Meyer said.

With a combination of hunting, mitigation banking, and wind development in mind, Meyer purchased the Pathfinder Ranch that stretches for miles along Highway 220 between Alcova and Muddy Gap. The ranch is home to big game including deer, pronghorn, elk, and a recently reintroduced herd bighorn sheep, along with a wide variety of birds and small game.

Since establishing Pathfinder LLC and buying the main Pathfinder Ranch in 2007, the company has also bought the Cardwell, Two Iron, Perkins, and Bummer Ranches in Carbon County. Pathfinder LLC also owns the Miracle Mile Ranch along the North Platte River.

The blue areas on this map show Pathfinder LLC's deeded lands in northern Carbon County. Purple grids measure 6 X 6 miles or one township. Road junction at left is Muddy Gap. At right is Shirley Basin. Tan is BLM land and light blue is state land. Pathfinder Reservoir is at top center. Pathfinder LLC also owns land in Natrona County. (Courtesy of Carbon County GIS office — click to enlarge)

The ranches have an assortment of habitats including riparian areas along the Sweetwater and the North Platte, numerous streams, large areas of upland sage, and mountains with aspen and pine forests. The various properties are spread across approximately 40 miles, from Independence Rock and the Ferris Mountains in the west to Shirley Basin in the east.

The ranches include leased Bureau of Land Management grazing parcels and state lands. The company has preliminary plans to provide roads and signage that will improve public access to state and federal lands in the future.

Fraley wrote in an email that the company has no plans for residential development on the ranches. “[Homebuilding] would possibly be one of the worst uses with the highest impact on the setting, wildlife, and habitat,” he wrote.

Finding the Best Fit

Meyer said he has worked hard at getting to know his neighbors. He’s used his writing skills to put together local histories about ranches both along the Sweetwater River and in the Bordeaux-Slater area.

Those conversations led to what the Pathfinder LLC website calls its “five guiding principles,” according to Meyer. They include protecting wildlife and habitat, enhancing public access, protecting historic treasures, avoiding impacts on viewsheds, and involving community members. The businessmen say those values help Pathfinder LLC maintain public support for its projects.

The new location of the Pathfinder wind farm in Platte County should work well, according to biologist Erik Molvar of the Biodiversity Conservation Alliance.

“[That area] is part of that green triangle that was identified by the Game and Fish and the Wyoming Infrastructure Authority [as having] essentially no identified wind power conflicts but high wind potential. That’s the ideal place to build wind power projects in Wyoming,” Molvar said.

The Biodiversity Conservation Alliance produced this map to show sage grouse areas and wildlife concerns in red, with high wind potential in green. The Pathfinder wind project will now be located in the green triangle of Southeast Wyoming. (Courtesy of Biodiveristy Conservation Alliance — click to enlarge)

But the environmental advantages of developing wind energy in the Platte County area wasn’t just Pathfinder’s discovery. A team formed by former Gov. Dave Freudenthal pushed hard for wind in the southeast region of Wyoming both as a way of avoiding key sage grouse habitat and a way to revitalize an economically depressed agriculture area.

With the Pathfinder wind project committed to Platte County, Meyer and Fraley have turned their attention to making Pathfinder one of the most intensely surveyed private ranches in the state.

Fraley says he has a six-foot tall stack of papers beside his desk detailing the baseline habitat and wildlife inventory of Pathfinder Ranch.  He said the KC Harvey environmental consulting firm of Bozeman, Mont., collected all this data to make informed proposals for how the land might be improved.

“We look at our ranch as a laboratory for development of new science [for conservation], with the goal of responsibly facilitating business,” Fraley said.

Pathfinder has organized its conservation bank under a single umbrella instrument to be submitted to the U.S. Army Corps of Engineers.  That structure allows for multiple mitigation banks to operate underneath the umbrella instrument.

The initial “bank” will be for wetland impacts. But later the company hopes to create other mitigation, or conservation banks.

“Conservation credit banking can be piggy-backed on the Corps of Engineers wetland mitigation process,” said Paige Wolken, the state IRT Chair and regulatory project manager with the Corps of Engineers Wyoming Regulatory Office in Cheyenne.

For example, when developers run into a roadblock due to the presence of threatened or endangered species, state or federal agencies sometimes permit the developer to mitigate the impact by buying mitigation bank credits for that species. This is just the kind of bank that Pathfinder is looking to create for sage grouse, and other wildlife, alongside its wetlands.

“We’re looking at all species habitat that exist on our ranch,” Fraley said.

Light green indicates sage grouse core areas in the Sweetwater-North Platte area. About half of Pathfinder LLC's ranches are within sage grouse core areas. (Photo Courtesy of Wyoming Game and Fish Department — click to enlarge)

The Finger Rock Preserve near Steamboat Springs, Colo., has sold credits to clients as varied as Union Pacific Railroad, Steamboat Ski Corp., Routt County, Rolling Ridge Development, Peabody Coal, and Xcel Energy.

Wolken says that the current yearly wetland impacts in Wyoming amount to less than 100 acres. She said companies like Pathfinder LLC seem to expect that number to grow. Fraley said his company’s research indicates a strong market for wetland mitigation banking in Wyoming.

“We believe its a prosperous business that would at least cover our costs,” Fraley said. “We hope to have a mitigation bank approved by the end of 2012. That’s our goal.”

Prevention Vs. Fixes

Mitigation banks are supposed to avoid a net-loss wetlands, but some observers say it may not be enough to retain healthy wildlife populations in local areas.

Ren Martyn, owner of the Finger Rock Preserve in Colorado, said mitigation typically works well for species that require a small amount of restored habitat and can be easily transported and kept within the site.

“I’m sure you can get your hands around a gopher tortoise that used to live in an area that’s now a subdivision, and you can move that tortoise to a new tract of land, that will be successful,” Martyn said.

But a species like sage grouse that needs large tracts of specific habitat is much more challenging. Wyoming has already seen examples of ineffective mitigation. Molvar pointed to the “millions of dollars” in funds set aside in the Upper Green River Basin to mitigate impacts of drilling to mule deer. Although money is set aside, “The mule deer populations have declined and declined. The mitigation fund has not appeared to slow the decline of wildlife populations or to help them recover,” said Molvar.

“It’s really the wildlife populations [that provide] a measurable barometer of your conservation success. If your wildlife populations are not recovering, then you are not compensating for the losses you’re causing. That’s the bottom line,” Molvar said. “Doing the job right in the first place is where the benefits lie for wildlife.  Not trying to throw some money at a problem that you’ve created after the fact.”

Pathfinder LLC officials say their proposal would differ from the type of mitigation done for drilling in the Upper Green because it has to demonstrate increases in wildlife numbers before getting approval to sell mitigation credits. The benefits have to be “in the bank” to earn IRT approval.

Still, Molvar and the Biodiversity Conservation Alliance would prefer that wind developers focus on minimizing their impacts during the initial phases of construction.

“The ball game is about siting your wind farm in an area where it’s not going to have impacts. That’s the big deal,” Molvar said. “Any additional mitigation off-site is icing the cake once you’ve avoided the major impacts through your siting decisions.”

That is what Pathfinder appears to be doing with its Bordeaux and Slater projects, which neither Fraley, Molvar, Wyoming Game and Fish nor area landowners expect to have wildlife impacts.

In November, 2008, the Biodiversity Conservation Alliance laid out its criteria for good siting decisions in a report called Wind Power in Wyoming: Doing it Smart from the Start. The document made use of scientific data and GIS maps to determine areas that would be most suitable for wind development.

Notably, the report suggested, “By steering wind projects away from lands where industrial development would be prohibited or controversial, wind power generators can reap the benefits of speedier approval processes and strong public support.”

Some Slater and Bordeaux area landowners — particularly those who wish to develop wind energy — strongly support that statement.

“I have every faith in Pathfinder,” said Larry Bacon, who is part of the Bordeaux Wind Energy Association. “I’ve lived in this land for 30 years, and they finally figured out something this land is good for. That’s an amazing concept.”

Bacon’s landowner association represents about 14 landowners who, collectively, own about 15,000 acres.

Pathfinder Ranch. (Dustin Bleizeffer/WyoFile — click to enlarge)

“This [wind project] is the least imposing on our environment [and] the communities. I think it’s going to be a big asset to bring in some economic development through the jobs. And my opinion is there’s nothing but good,” Bacon said.

Bacon said he believes Pathfinder Renewable Wind Energy will do a good job of protecting wildlife in the project area. The company currently has a wildlife team in the field collecting baseline habitat and animal population data.

“It’s not going to hurt anything around here.  I think it will be less damaging to the environment than oil wells would be,” Bacon said. “Once the towers are put up and the land is rejuvenated, I think we’re hardly going to know they’re here,” he said.

Chugwater resident Dan Kirkbride, a former Platte County commissioner, said the promise of economic growth has compelled most people to look positively on wind development in Platte County.

“People are hoping that there might be some new jobs for Chugwater, something that would strengthen the community,” said Kirkbride, adding that locals may be in for a bit of a shock when the wind towers are finally erected.

“We may be naive, but everyone is pretty positive and hopeful about it,” said Kirkbride.

Molvar also praised Pathfinder’s efforts at wind farm planning in Platte County.

“From what I’m hearing Pathfinder is doing quite a good job to get the siting right in addition to doing some off-site mitigation as well,” Molvar said.

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— Greg Nickerson is a University of Wyoming-trained historian and writer from Big Horn.  He has worked on documentary films in Nicaragua, Yellowstone, and Philadelphia, and held jobs as a museum curator and hunting guide.