September 2017, Vol. 244, No. 9

Features

Environmental Dissonance: Troubling Times for Oil & Gas Operators

In mid-2017, in a remote, sparsely populated part of the Four Corners area of New Mexico, members of the Navajo Nation Council came to the Counselor Chapter House to listen to some of their constituents, and for five hours they got an earful. Local folks living among increased hydraulic fracturing jobs in the nearby San Juan Basin oilfield had plenty to say about the uneasy existence between stepped-up energy/economic development and the environment embodied by Mother Earth.

It is earth sciences that are at the heart of the ongoing climate change, environmental and energy issues that confront much of the world these days, ironically in a period in which the United States finds itself as the world leader in fossil fuel production and infrastructure. Using the Navajo as both an industry and environmental yardstick, the ambivalence is thicker than the confrontational part of the ongoing clash between climate change and fossil fuel supporters who have come to hold a healthy distrust for the other side, whichever side of the line that might be.

Writing for a Navajo Nation tribal blog, Melorie Begay, with New Mexico in Depth, cites over 100 years of oil and gas extraction in northwest New Mexico, but more recent technological advances have “led to a dramatic rise in fracking for oil in and around these rural communities.”  She cites a major exploration/development (E&P) company, Tulsa-based WPX Energy, for drilling 100 new wells in the area since 2013.

“It’s not uncommon for the fracking sites to be close to homes in the Counselor (NM) area, and they can be as close as 400 feet,” Begay said. “Pipelines snake along the sides of roadways, crossing driveways.” And in the tribal council’s listening meeting, residents expressed concerns about day-to-day living in close proximity to all of this E&P activity. They don’t cite grand climate or environmental concerns as much as a wariness about daily living. In July 2016, one of WPX’s storage complexes experienced an explosion and massive fire that consumed 36 oil wells along with water storage tanks and related facilities; one nearby resident complained to tribal leaders this year that no one from WPX or any other organization came to her aid.

Speaking from the environmental side of the equation, Kandi Mossett, a communications manager with the Indigenous Environmental Network (IEN), an active opponent of the Dakota Access Pipeline (DAPL), remains skeptical about the prospects for establishing some sort of positive relationship with the oil and gas sector, even as she agrees that “there needs to be one,” particularly in terms of communications.

“Right now, I hardly think of it in terms of any ‘relationship’,” Mossett said. “We need to have more open communications,” said the activist and member of the three affiliated tribes on the Fort Berthold Reservation, located in the midst of the rich Bakken Shale production in North Dakota.

“At the end of the day we [tribes and environmental groups] want the same things as the oil/gas industry when it comes to meeting energy needs. It is just that we have different visions on how to meet those needs.”

When Pipeline & Gas Journal caught up with one of WPX’s communication managers covering the company’s New Mexico operations, Kelly Swan, who called in from vacation in the East, he strongly defended current company relations with the local residents in the Four Corners area. Swan confirmed that WPX plans for the rest of 2017 were to drill up to 40 wells in the San Juan oil play, investing up to $150 million. The company has paid out about $100 million in royalties, bonuses and leases from its production in the southern end of the play.

“We have a very active relationship with the local residents who have a stake in the oil/gas production,” said Swan, noting the company at mid-year 2017 hosted an “energy day” for people in and around Nageezi, NM where much of its drilling activity is ongoing. “We had about 350 local Navajo citizens come to the event; it’s part of WPX’s community outreach  and very proactive, positive working relationship [with the Native Americans].”

Rather than opposition or obstructionist behavior, Swan characterized the locals in the New Mexico oil patch as having many questions, and they are not shy about coming into the operator’s local office in Aztec, NM (30 miles south of Farmington, NM), to get answers. This is the sort of direct face-to-face interaction with the environmental and Indian contingents that is often missing, according to those on both sides.

While there may be less of it in northwestern New Mexico, the ongoing landscape for environmental and oil and gas leaders is littered with too many we-vs.-them confrontations. And the courthouses are filled with too many lawsuits seeking to impose or repeal added protections. Aside from the monetary expenses, there are costs to goodwill and good government. The people on both sides of the battle lines who provided P&GJ with insights and opinions for this article appear convinced that there is little common ground between the two sides.

“We often think about the oil/gas industry as being homogenous, and we apply that to the environmental movement as well,” said David Ludlam, executive director of the West Slope chapter of the Colorado Oil and Gas Association (COGA). “In reality, the environmental community has many different forms and factions, and we’ve learned they are not all the same. Often times, they are not funded by the same people and they have different objectives.”

Groups like the Wilderness Workshop or Wildlife Guardians are funded by what Ludlam calls “ideologically driven zealot advocates,” whom he and others in the industry consider “radical advocates.” As a result, industry leaders like Ludlam say these activists are not interested in collaborating or developing cooperative approaches to environmental rules. Not unlike the national health care debate, the dialogue is laden with too much politicization.

Since the dawn of the modern environmental movement in the Nixon administration, legal action has been the salve and the infection, poisoning the environment for the losing side and buoying the winners. Mostly there are only winners and losers, never a full census of benefactors. Generally it all has added up to substantial direct and indirect costs to industry and society.

Kathleen Sgamma, president of the Denver-based Western Energy Alliance (WEA), sees the major environmental groups as ready, willing and very able to sue anytime and anyplace they can find a courthouse. She sees them as having an insatiable appetite for lawsuits and substantial financial backing to carry through in the courts, raising the stakes significantly for the energy industry.

Regarding specific environmental sector efforts to kill U.S. Bureau of Land Management (BLM) oil and gas leases in major producing states such as Wyoming, Colorado and Utah, WEA has intervened in that lawsuit, Sgamma said matter-of-factly. The brief from WildEarth Guardians was filed at the end of June.

“There were no surprises in the brief – just the same policy disagreements,” she said. “Basically, WildEarth Guardians [WEG] uses lawsuits like this to try to stop all oil and natural gas development on public lands, despite several laws requiring responsible development. The climate change argument is one to throw against the wall in the hope that it will stick, even though BLM conducted analysis on the impacts of the sale on climate change, thereby fulfilling its National Environmental Policy Act [NEPA] obligation.”

As far as collaboration, Sgamma thinks the industry works with what she called “real” conservation groups like the Nature Conservancy, Pew Charitable Trust, Mule Deer Foundation, Rocky Mountain Elk Foundation and others to enact actual conservation programs.

“However, the traditional environmental lobby exemplified by the Sierra Club, Natural Resources Defense Council [NRDC], Wilderness Society and many others, including WEG, are not worth working with,” Sgamma said. Her view is that the environmentalists long ago abandoned any agenda of ensuring human activities can be done in a way that’s protective of the environment, and are now focused on stopping all development, including oil and natural gas.

This past spring, Moody’s Investors Service analysts cataloged the most significant credit risks from the carbon transition facing industry companies, noting that under the rating agency’s baseline scenario on the credit implications of reducing greenhouse gas (GHG) emissions, “the oil/gas industry faces significant risks compared to the past.” Moody’s baseline took into consideration the Paris Agreement on climate change signed by nearly 200 nations. President Trump has pulled the United States out of the accord, although many states and other “sub-national” entities are vowing to pursue the reductions in the agreement.

For oil and gas businesses, the material risks are a combination of lower product demand, increased uncertainty in the transportation sector, higher price volatility and shrunken margins, but global policy pushes to reduce carbon as embodied in the climate change agreement poses what Moody’s labels as a “significant threat.”

“The industry’s product cannot be changed and no technology exists at scale to mitigate its carbon emissions,” wrote John Thieroff, vice president and senior analyst on the Moody’s team that analyzed the credit risk impacts of environmental mitigation requirements. “Direct financial effects will not appear for several years, but could be material by the 2020s.” Moody’s analysts concluded that individual oil/gas operators’ ability to respond to the risks will vary greatly.

Further straining the already rocky relations between the energy and environmental sectors, Thieroff noted that “high-cost, long-lead-time projects” could be at risk for becoming stranded, causing “significant challenges” for long-range strategic planning and investment. This could particularly emerge for “large-scale frontier” E&P projects, he said.

“Natural gas is better positioned than oil in the baseline scenario to stave off demand destruction, given its lower CO-2 emissions than coal,” Thieroff said. If environmental pressures continue to yield lower demand, oversupply becomes a further destabilizing factor, leading to low commodity prices, increased volatility and weaker profits.

IEN’s Mossett sees the burgeoning renewable energy sector as a possible common solution for both sides, leading to lower carbon emissions and new sources of profit for the energy companies that historically were tied only to fossil fuels.

“It is an opportunity for the sectors to work more together,” she said. “It is all part of a transition that won’t happen overnight, but there needs to be more steps taken now. There is a lot of business-as-usual now, particularly with the Trump administration that is trying to bring back coal.”

While she doesn’t see the Trump administration’s anti-regulation/pro-fossil fuels approach as necessarily re-energizing the environmental movement, she thinks it has created a giant “wake up call” to environmentalists. But it shouldn’t preclude the two sectors from looking for ways to collaborate and cooperate, she said.

However, midway through 2017, North Dakota’s chief regulator Lynn Helms, director of the state Department of Mineral Resources, said he was starting to observe “major pushback” from environmental groups on the Trump administration’s rollback of the low-methane rules. “We have seen enviro groups file friend-of-the-court briefs or entirely new court cases to push back on the [Trump] rule relaxations,” Helms observed at one of his monthly production reporting webinars.

Underscoring Helms, in mid-July, environmentalists and tribal groups filed a lawsuit challenging the Trump administration’s decision to indefinitely delay an Obama rule limiting methane emissions from oil and gas operations on public lands. It was led by the Sierra Club, seeking to immediately reinstate the rule. An EarthJustice attorney accused the Trump team of blatantly ignoring the law to allegedly favor polluters.

Rather than push back, WPX officials consider local residents’ concerns a normal course of business in any development projects, but what isn’t as ordinary are “outside parties coming into a drilling area and trying to stir things up.” For the most part, WPX considers its community ties as “pretty good,” spokesperson Swan said.

“We have a good team in our Aztec office that is committed to doing community outreach,” he said, noting that he has “interviewed” local residents in the area and both pro- and anti-drilling residents cite the same reasons for their positions – family and cultural ties.

“Their reasons are all the same,” he said. “It is basically about preserving culture and family history. For those opposed to the drilling that is what they said, and for those supporting the drilling, they cite the exact same reasons because it was their father or grandfather that signed a right-of-way agreement for a pipeline, for example, back in the ’40s and ’50s.”

In western Colorado, an Outdoor Recreation Coalition works closely with the oil and gas sector, but as western industry association leader Ludlam readily points out, the coalition is a “business” just like the operators, so they have plenty of common ground. Portions of the royalties in the region help fund various outdoor recreation projects.

West Slope COGA has endorsed several outdoor recreation projects in and around Grand Junction, CO.

“We look at the outdoor recreation and natural gas sectors as interdependent in the sense that the cash flows we generate help build these facilities and help diversify our economy,” Ludlam said. “This is something that the more radical environmental groups don’t like, and it can further drive a wedge between us because they literally make their livings and depend on having conflicts.”

“But with the outdoor recreation groups we have found a way to work with them in a constructive manner.”

Industry veterans like Ludlam stress the importance of recognizing that the industry does not oppose environmental requirements or regulations, and in fact, “operators want to have a strong regulatory environment and a set of rules that helps protect our industry.”

“That’s different than the additional cost burden put on the industry by parochial well-funded NGOs (non-governmental organizations). The battle over belatedly taking away oil/gas leases is all about parochial politics, and all about protecting a couple of pieces of private property. It has cost our companies millions of dollars over the past decade,” Ludlam said of his experience along the Western Slope of the Rockies.

Ludlam argued that usually the NGOs are talking about non-rational, unimportant issues. “They often don’t have anything to do with how strong our protections are in Colorado.” He thinks society needs to analyze and quantify: (a) NGO environmental activism, and (b) the overall cost of putting thoughtful, legitimate regulations in place.

In contrast, Kate Mossett, a self-described millennial, was working on improving communications of environmental and other issues on the Crow Reservation in Montana this summer, where she found tribal leaders working directly on coal issues while individual members were pushing back against their leaders.

Economic development, she thinks, too often gets tied to the fossil fuel programs, causing “a Catch-22” for people making the tribes economically dependent on “their own cultural destruction because the energy development is destroying their own culture,” Mossett said.

She cited the example of energy infrastructure companies “bullying” the Fort Berthold tribal leaders, threatening to use eminent domain to get a pipeline right-of-way across the tribe’s buffalo lands.

“The oil/gas industry has to become much more willing to give on their side,” she said. “We’re willing to do so on our side.”

The rift and the distrust on both sides of the debate often seems insurmountable, but what seems to be needed is for more of the responsible people, such as David Ludlam and Kandi Mossett, to break through the barriers and meet face-to-face, honestly sharing their views.

If that happened, there just might be a chance for more common ground to be ploughed. Otherwise the future will continue to look just as fractured and polarized as in the past.

Richard Nemec is a Los Angeles-based correspondent who writes regularly for P&GJ. He can be reached at rnemec@ca.rr.com.