Utah lawmakers hold up oil and gas budget in wake of scathing audit

(Brian Maffly | Tribune file photo) Pump jacks pull up hydrocarbons in the Three Rivers oil field southwest of Vernal, near Pelican Lake and the Green River, pictured on June 14, 2019. Members of Congress, including Utah Republicans, are seeking a halt to collection of federal royalties for mining and drilling on public lands — except they want the states to keep getting their share.

While the Utah Division of Oil, Gas and Mining reorganizes its oil and gas program in the wake of a scathing performance audit, lawmakers are delaying consideration of the agency’s base budget to see how well it improves oversight of thousands of wells and waste-handling facilities.

In November, legislative auditors released a report that concluded DOGM allows industry to skirt environmental regulations. Cases of noncompliance went unresolved for years, dilapidated wells went without timely inspections, and inadequate bonding could expose taxpayers to reclamation costs. Despite finding numerous violations, the agency hadn’t leveled a single fine against an oil and gas operation in its 24-year history.

In response to the audit, DOGM put its oil and gas program under new leadership, developed a program to prioritize inspections and resolved all but two of 105 unresolved cases involving violations of safety and environmental standards. The program is poised to hire five new inspectors on top of the five full-timers now in the field, according to DOGM Director John Baza.

But members of the Legislature’s Natural Resources, Agriculture, and Environmental Quality Appropriations Subcommittee wanted to see further “good faith” progress before inserting DOGM into the budget bill it oversees.

“We have an interesting dilemma,” committee co-chairman, Rep. Stewart Barlow, R-Fruit Heights, told Baza on Wednesday. “We need to make a decision. When has good faith been shown to a point that we can reinstate your base budget? We need hard-and-fast commitments. You are going in the right direction with it.”

[Read more: Feds propose oil and gas leasing on Moab’s Slickrock trail]

DOGM, which gets much of its funding from federal sources, also oversees mining of coal and nonenergy minerals along with reclamation of abandoned mines, programs that haven’t shown performance shortfalls.

The recent audit was a wake-up call for DOGM, which has reordered its priorities to promote a culture of compliance, especially around safety. “We are committed to making those improvements,” Baza told lawmakers. “The audit was a tough pill to swallow, but we’re making progress.”

At Wednesday’s hearing Baza sat through the litany of faults uncovered by auditors, most notably the routine failure to hold errant oil and gas operations to the rules. Instances of noncompliance are supposed to be resolved within 30 days, but the audit found it took on average two years to rectify violations.

“Lack of accountability is a real problem,” auditor Nicole Luscher told the committee. “Program staff identified six operators expected to cost taxpayers $1 million in reclamation and plugging costs.”

The state assumed $245,000 in reclamation costs last year, and auditors expect it to be on the hook for another $450,000 over the next two years. These obligations arise when operators walk away from marginal or inactive wells that are not sufficiently bonded.

Lawmakers from Utah’s oil and gas country were less eager to criticize DOGM, which has fulfilled aspects of its mission to nurture development of the state’s hydrocarbon resources.

“There is room for improvement, but I have to say our employees do an excellent job with the resources they have,” said Sen. Ron Winterton, R-Roosevelt, and former Duchesne County commissioner. "In no way do I want to say this has not been a black eye, but they have been responsive. Nobody wants to harm the environment or ignore what’s going of if there are violations.”