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Monday, January 04, 2010

Don't Blame the Pit Rule for Loss of Revenue, State Budget Crisis

By Joanna Prukop
Former Secretary, New Mexico Energy, Minerals and Natural Resources Department
          Don't Blame the Pit Rule for Loss Of Revenue, State Budget Crisis
        New Mexico's oil and gas industry generated $1.8 billion for the state's general fund last year and employed thousands of New Mexicans. It is critical to our state's economy and so is our responsibility to protect the environment, wildlife, natural resources, and especially precious ground water.
        Industry lobbyists and some politicians blame the Pit Rule, adopted by the New Mexico Oil Conservation Commission in 2008, for the state's current budget crisis and the drop in state revenues and claim that the Pit Rule is driving the oil and gas industry out of the state. This is not true and only represents half the story. Relevant facts are conveniently omitted, like the global crash in oil and gas prices and that neighboring states are also seeing reduced oil and gas drilling activity. There have been no attempts by these lobbyists and politicians to enlighten the public as to what the Pit Rule regulates and protects.
        Here is the whole story:
        The Pit Rule is about proper waste management and is designed to protect our state from toxic spills and leaks generated from oil and gas operations. There are at least 421 cases of known ground water contamination caused by drilling pits; most were self-reported by industry. It is unknown how many other cases there are because, until the Pit Rule was implemented, most pits were buried in place and no testing was required.
        What is a pit? Visualize the coffee grounds in your coffee maker; add some grease, mud, oil, salt water and numerous hazardous chemicals until your concoction fills a container the size of an Olympic swimming pool. Now, bury it on someone else's property and leave it. Nasty, huh?
        It is estimated that there have been 90,000 wells drilled in New Mexico since the 1920s and at least one pit can be associated with most wells. These pits contained what's known as produced water (which can be 10 times saltier than the ocean), drilling muds with chemical additives, as well as the subsurface rock cuttings.
        The Pit Rule places the responsibility on oil and gas operators to clean up contamination rather than placing the liability on the state and taxpayers. It sets a tough but fair standard of environmental protection from any future ground water contamination by specifying minimum requirements for pit liners and establishing pit closure procedures. The adoption of the rule was an 18-month process, created with the input of industry, the environmental community and many others in a very public process, which included outreach, a task force, and 19 days of hearings.
        Some responsible companies have switched to closed loop systems, which utilize above-ground tanks instead of in-ground pits. The upfront cost is balanced by the ability of the system to be reused. These systems minimize the risk of contamination and the cost of reclaiming the well site. It is less expensive to implement preventive measures than to clean up contamination.
        We can produce oil and gas in New Mexico in an environmentally sound manner, but we can't do it using the old rules, regulations and attitudes that have resulted in the contamination legacy issues we face today.
        Obviously the Pit Rule did not cause the global drop in oil and gas prices. Industry's own facts demonstrate that it is the price of oil and natural gas, not the Pit Rule, that determine oil and gas production levels and rig count. According to the Baker Hughes rig count, the number of operating rigs in New Mexico continued to increase six months after the Pit Rule was adopted. It wasn't until oil and natural gas prices dramatically dropped worldwide that the number of operating rigs decreased.
        The oil and gas industry in the states of Colorado, Texas, Utah and Wyoming experienced the same slowdown due to the collapse of oil and natural gas prices. Wyoming is the clearest example; its drilling activity closely mirrored ours.
        The Pit Rule is designed to protect the citizens of New Mexico, their water and their health from oil field wastes. It also protects the oil and gas industry from the potentially crippling liability of major environmental impacts. New Mexico is blessed with a range of natural resources, including oil and natural gas. The responsible extraction of these resources will ensure the long-term health of the oil and gas industry and the people of our state, while preserving the integrity of our ground water.
        The rule requires industry to conscientiously manage the waste it generates to protect our ground water, environment, wildlife and natural resources. These resources are crucial to hunting, fishing, and other wildlife-associated recreation, which generates approximately $1 billion in our state's economy and employs 20,000 New Mexicans. The Pit Rule is responsible regulation and simply the right thing to do.
       

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