A scathing legislative audit concluded Utah’s oil and gas program has let industry skirt environmental regulations, allowing cases of noncompliance to go unresolved for years, dilapidated wells to go without timely inspections and inadequate bonding to put taxpayers on the hook for at least $1 million in reclamation costs.
The audit, released Tuesday, said the Utah Division of Oil, Gas and Mining (DOGM) could not document a single fine it has ever levied on an oil and gas operator — despite dozens of instances in which standards were violated, sometimes resulting in environmental damage.
“Twenty-four years without a fine? Are you kidding me?” Sen. Karen Mayne, D-West Valley City, said Tuesday at a meeting of the Utah Legislative Audit Subcommittee, where auditors presented the report. “Someone is not taking care of business.”
Dangerous situations could have been prevented at two unnamed waste-disposal facilities had the program exercised adequate oversight, according to the audit.
In 2016, for example, inspectors put operators at one wastewater site, identified only as Facility A, on notice that they had to either replace their ponds’ aging liners or reclaim the ponds. There was no follow-up, however, and three years later, wastewater leaked from a pond last April and contaminated a water course, auditor Nicole Luscher told lawmakers.
An arm of the Department of Natural Resources, DOGM regulates oil and gas exploration and production in Utah, processing drilling permits and inspecting wells. The oil and gas program’s mission is not only to promote the development of Utah’s resources, but also "maintain sound, regulatory oversight to ensure environmentally acceptable activities.”
It was this enforcement side that auditors found lacking in their 51-page report. For example, DOGM failed to prioritize inspections, keep records according to agency policy and resolve issues of noncompliance within a required 30-day time frame, instead taking on average two years, Luscher said.
In an official written response, DOGM Director John Baza and DNR Executive Director Brian Steed agreed the oil and gas program must bolster its “culture of compliance.” To that end, it already had reduced its backlog of noncompliance issues from 105 to 33 unresolved cases.
“We are taking steps to improve the leadership, culture and expectations,” they wrote. “We want to go beyond the recommendations in this audit to create sustainable and responsive change. The program is evolving, requiring accountability and commitment at all levels.”
The program oversees 16,141 active wells and 28 waste-disposal sites with a full-time staff of 20 who conducted 6,859 field inspections last year. This portfolio includes 193 separate operators. As of June, auditors found the agency had a backlog of 105 instances of noncompliance awaiting resolution. For 29, DOGM had issued notices of violations, or NOVs, which carry no consequence other than a requirement to correct the violation within 30 days.
The average time those NOVs had been issued without corrective action, however, was nearly three years.
The lack of enforcement has "fostered a culture of noncompliance” that is expected to cost Utah taxpayers at least $1 million to repair messes left by six problem operators, the audit said.
“Some industry operators are aware of the lack of consequence associated with NOVs and have used negligence to their advantage," the audit states. "Receiving an NOV, or several NOVs, with no consequences may become a competitive advantage for noncompliant operators who cut corners.”
Colorado, Montana, New Mexico and Wyoming have made enforcement a priority, with each issuing at least one fine within the past two years, according to the audit. While these states do not require a court order to impose fines, Utah regulators may seek fines only through a court order, which they have not done since 1995.
“We are taking this audit very seriously. It has been a painful process to see where we have fallen short, but we are dedicated to improving our leadership, culture and expectations,” Baza said in a prepared statement. “Utahns need to know that we are protecting public safety and the environment while performing our jobs as oil and gas regulators. This audit gives us guidance on how to better fulfill that mission.”
In response to the audit, DOGM has reshuffled its management and put Bart Kettle in charge of oil and gas. In an interview, Baza identified four “pillars” to bolster oversight. The agency plans to improve compliance; provide greater transparency and upgrade electronic systems to track performance; update bonding requirements; and maintain its workforce.
"We need to do better to fill our positions and use that money for what it was intended," Baza said. "Bonding hasn't been looked at in 16 years."
Since 2002, industry has been required to put up certain amounts of money to cover the cost of plugging wells. The amounts vary depending on well depth, but they have never been adjusted and are no longer adequate for reclaiming sites that have been abandoned, Luscher said.
Between 2014 and 2018, DOGM spent $325,000 plugging abandoned wells, thanks to inadequate bonds, and those cost are expected to balloon in the coming years. The agency forecast plugging 33 abandoned wells in the next two years, costing taxpayers another $450,000. Meanwhile, the wastewater disposal facilities are underbonded to the tune of $3.2 million.
The audit highlighted another site, called Facility B, where DOGM inspectors in 2018 had noticed hydrocarbons accumulating on about a third of one pond surface. The rules require these films to be removed within 24 hours because they pose a threat to migrating birds and other wildlife. DOGM failed to follow up for four months. By the time inspectors returned in August 2018, the hazardous films covered the entire pond and parts of another.
Baza said DOGM is now taking action against both facilities mentioned in the audit. The first no longer accepts wastewater and was slapped with a pair of NOVs, one for discharging contamination into a waterway and the other for failure to report the discharge.
“All the pits are shut down and reclamation has started," Baza said. "It needed the audit to bring this to our attention.”
Audit committee members were particularly alarmed by the complete lack of fines and timely inspections for older wells, the ones that pose the biggest risks.
“It’s really a toothless watchdog we have here with oil and gas,” said Rep. Brian King, D-Salt Lake City.
Auditors also found that program managers scaled back inspections and oversight, rather than dipping into financial reserves, when revenue streams declined after the 2014 downturn in commodity prices.
“Management should have established a financial target and a strategic plan for incremental savings to ensure that program operations would not suffer,” auditors wrote. “Program reductions and excessive workloads were two consequences of management’s financial decisions.”