Proposed well inspection fees pit regulators against legislators and industry.
The U.S. Bureau of Land Management is attempting to charge fees to inspect oil and gas wells it oversees on public lands again – marking five straight years it has come before Congress.
The request has always been denied, but the BLM says the fee is needed now to address the large number of uninspected wells in the country.
Neil Kornze, director of the BLM, in a speech to the Rocky Mountain Mineral Law Foundation in Vail, Colo., on July 17, called the bureau’s inspection program “lagging” and said it needs to do better.
“We are now seeking to fund inspections through a fee system that will allow us to be much more responsive to the needs of the industry and, more important, to meet the foundational safety and accounting responsibilities of our oil and gas program,” Kornze says.
The U.S. Government Accountability Office found that 40 percent of the wells drilled between 2009 and 2012 that were considered “high priority” were not inspected, despite the agency’s goal of inspecting all of them. They were deemed “high priority” because of threats to usable water, high-pressure zones or zones that contain hydrogen sulfide.
The bureau is responsible for the inspection of 100,000 wells nationwide.
Wyoming leads the country in energy production on federal land – and uninspected federal wells. An investigation by The Associated Press found that 632 wells flagged for potential environmental or health hazards went uninspected in Wyoming between 2009 and 2012. Colorado, with 244 uninspected high-risk wells, was second.
“We have a system that’s very stretched,” says Kornze. “The market is so hot that industry is hiring away a lot of our talent.”
The BLM is also putting some of the blame on Congress as well. Kornze notes that appropriations for BLM’s oil and gas program, which includes inspections and enforcement, dropped 17 percent between fiscal 2007 and 2013, falling to $118 million last year before rebounding to $131 million in 2014.
Kornze says the BLM currently has fewer than 10 senior petroleum engineers who have been with the agency for 10 years or more.
Facing a battle
BLM’s fiscal 2015 budget is asking Congress to allow it to collect about $48 million annually for onshore well inspections. The fees would range from $700 for leases with no wells but some surface disturbance to $9,800 for each lease or agreement with at least 50 wells.
“If that happens, Wyoming would likely lose more jobs and revenue than any other state,” says Laura Mengelkamp, a spokeswoman for Republican U.S. Sen. John Barrasso.
BLM says the fees would not be onerous. Operators already bid heavily to acquire lease tracts and pay $6,500 for each drilling application they submit. That is in addition to rental fees and royalties on production.
“I don’t understand why we can’t ask the oil and gas industry who profits so handsomely from the extraction of oil and gas from public lands to pay a reasonable inspection fee to ensure safe and efficient operations,” said Rep. Jim Moran (D-Va.) during a BLM budget hearing in April.
Kathleen Sgamma, vice president of government and public affairs at the Western Energy Alliance, says that the BLM has transferred resources toward administering renewable energy projects and conducting redundant environmental assessments.
“You have the BLM director turning around and saying he needs more money out of the oil and gas industry to do his job after he made those management decisions,” Sgamma says.
Sgamma says oil and gas companies already pay permitting fees, and raising them further creates a burden on an industry that already contributes around $54 in tax revenue for every dollar spent by BLM administering its oil and gas program.
“The oil and gas industry returns $54.12 for every taxpayer dollar that BLM spends for the federal onshore oil and gas program,” Sgamma says. “We already pay for inspections permitting, leasing, you name it, 54 times over.”
Rep. Ken Calvert (R-Calif.) said earlier this year that the fee proposal “doesn’t appear to be a win-win,” especially since it would do nothing to reduce permitting timelines and increase development on public lands. Sen. Lisa Murkowski (R-Alaska) agreed with Calvert saying she opposes the measure “because it makes federal lands less competitive compared to state and private lands.”
There could be hope
Johnson County, Wyo., has the highest concentration of uninspected federal wells in the country, accounting for 249 of the 632 wells that went unmonitored in Wyoming.
Those numbers show BLM cannot enforce its existing rules, yet alone keep up with advancements in drilling technology, says Amy Mall, senior policy analyst at the Natural Resources Defense Council, an environmental group.
Mall dismisses concerns that inspection fees would drive energy companies from federal land, noting similar fees have been levied on offshore drilling operations without adverse impact on the industry.
The American Petroleum Institute, which represents some major companies operating on public lands, says it has “reserved judgment” on the proposal until more is known about other BLM regulatory actions.
“We believe proposals like this should move through the legislative process so lawmakers and the public can understand and weigh their goals and impacts,” says Brian Straessle, spokesman for the American Petroleum Institute.
Sgamma says the alliance isn’t opposed to inspections at oil wells and supports a bipartisan bill introduced in Congress in June co-sponsored by 13 legislators, including New Mexico senators Tom Udall and Martin Heinrich, both Democrats. The measure would increase permit fees from $6,500 to $9,500, but the bill directs at least 75 percent of the permit fees to state BLM offices.
“We’re willing to pay more when we know it’s going to be used correctly at the field office, but a vague new inspection fee is not something we support,” Sgamma says.