Note:  The best way to evaluate Spectra Energy is to evaluate its track record, not its promises.  Any evaluation of its track record should include listening to stakeholders who live near Spectra Energy facilities.  

Pinochio Award for Spectra Energy’s ‘Ground Game’ on Sabal Trail Pipeline,

While Company Pushes 8 Pipeline Projects in 14 States; 

Meanwhile PHMSA Documents Corrosion Problems

Spectra Energy (NYSE:  SE) has eight new pipeline projects in the U.S. that, if approved, will result in more than 830 miles of pipeline in 14 states.  In addition, it is constructing a new underground natural gas storage reservoir in Louisiana with a capacity of 15 billion cubic feet.

In Canada, Spectra Energy is busy with three major projects, all in British Columbia.  These involve two processing plants for raw nat gas and a huge “transportation system” – the word pipeline is never used – that is 525 miles in length.  Check for your state in the highlight list below under Links & Resources.¹

With all this experience, property owners and communities might expect Spectra Energy execs to be on top of their game when it comes to a knowledgeable response to questions about its pipelines and corporate performance record.

Or maybe not.

Largest Pipeline Project

In the U.S. the company’s largest pipeline project is the proposed Sabal Trail pipeline aimed at cutting a 475 mile swath through three states:  Georgia, Alabama and Florida.

It did not take “interstate” property owners long to mobilize.  Here is a link to their energetic website: http://spectrabusters.org/  and one for their Facebook page: https://www.facebook.com/#!/spectrabusters

Surely this is a platform for Spectra Energy to demonstrate best-in-class response to questions – to not only reassure communities but to impress federal agencies like the Federal Energy Regulatory Commission (FERC)?

Or maybe not.

Property owners make clear their opposition to Sable Trail pipeline. (Photo courtesy of Carol Singletary.) 

1^st Pinochio Award

For example, Andrea Grover, Spectra Energy Director of Stakeholder Outreach (ironic title), asserts at a public pipeline meeting in Georgia that property owners at Spectra Energy’s huge Steckman Ridge compressor/storage facility in Bedford County, Pennsylvania, are “happy” despite ongoing problems there for 5 years, and a consistent lack of response from Spectra Energy to questions.

Thanks to word-of-web, Georgia property owners know Grover’s assertion is a lie.  What else does one call it – an error, slip of the tongue, disingenuous?

FACT:  More than a dozen families who live next to or near the problematic Steckman Ridge compressor/storage facility have complained to Spectra Energy management about a ring of health, water and operational issues surrounding this facility since operations began in 2009.

They have also complained in writing to the federal Pipeline & Hazardous Materials Safety Administration (PHMSA).

Based on record keeping by neighbors, there have been some 60 shutdowns, blowdowns and related incidents at the Steckman Ridge compressor station and underground natural gas storage facility between August 2009 and the present.

2^nd Pinochio Award

The same Spectra Energy executive, Andrea Grover, asserts to Georgia property owners that uncontrolled releases of methane and other hydrocarbons at the Steckman Ridge compressor facility are “normal.” Let’s hope not.

FACT:  Grover should recall the March 9-10 incident last year at Spectra Energy’s Steckman Ridge facility because she was directly involved.  This was yet another uncontrolled release that resulted in 431.5 thousand cubic feet of methane and other hydrocarbons vented to the atmosphere over a two-day period.

Before property owners discovered on their own the size of the leak, Grover asserted to the Associate Editor of the Bedford Gazette that only a “small volume” escaped.  Grover and her Spectra Energy management team all the way up to Canadian CEO Greg Ebel still refuse to publicly acknowledge the size of its fugitive methane release.²

Andrea Grover, Spectra Energy’s Director of Stakeholder Outreach.

3^rd Pinochio Award

At the same public meeting in Georgia, Grover asserted to property owners and the news media that she is unfamiliar with the federal Pipeline & Hazardous Materials Safety Administration’s (PHMSA) 6-figure fine levied against Spectra Energy CEO Greg Ebel.

FACT:  How is it that a veteran of the industry and Spectra Energy whose job is about pipelines remains unaware of such facts?  Does Grover really not know that in December 2012, PHMSA issued her CEO Greg Ebel a “Final Order” and civil penalty of $134,500 related to various violations across several states.

Among other issues, the company was cited for failure regarding valve inspections.  PHMSA states (emphasis added):  ”An operator that fails to follow its own procedures for valve inspections increases the risk of preventable pipeline accidents.”  PHMSA Reference Link: http://www.phmsa.dot.gov/staticfiles/PHMSA/DownloadableFiles/420121009_Final%20Order_12212012.pdf

7-year Track Record – Pipeline Corrosion Incidents

That’s not all when it comes to pipelines.  According to PHMSA, the track record of Spectra Energy (via its Texas Eastern pipeline division) is not good.  Over a 7-year period (2006-2013), 21 incidents are listed by PHMSA for Spectra Energy’s (Texas Eastern) Gas Transmission pipelines (which is what Sabal Trail will be, a transmission pipeline). The estimated total property damage for those Spectra Energy incidents during that 7-year period is $8.5 million.  PHMSA Reference Link: http://primis.phmsa.dot.gov/comm/reports/operator/OperatorIM_opid_19235.html?nocache=5991#_Incidents_tab_3

Thirteen of the 21 incident causes are attributed to “internal corrosion” –  that’s 65%.  Five of the 21 incident causes are listed as “Material/Weld/Equipment” failure.  None of the incidents are attributed to excavation.

 Spectra Energy’s Pipeline Corrosion Problem

Failure rates offer a real-world metric – much more valuable than promises about “safety.”  Thus, Spectra Energy’s track record, documented by the federal government (PHMSA), reveals internal pipeline corrosion is the chief cause of “significant” pipeline incidents for Spectra Energy over the last 7 years.

Remember three lessons:  Track record, track record, track record.

Spectra Energy’s challenge is simple:  Practice full disclosure about its performance record – full disclosure about the company’s fugitive methane emissions, valve failures, corrosion incidents, and catastrophic failures where they have occurred.

Meanwhile, let the public, local government and property owners beware.  Investors reference link: http://www.trilliuminvest.com/resolutions/fugitive-methane-emissions-report-spectra-energy-2013/

Links & Resources

¹Spectra Energy’s New Pipeline Projects in the U.S involve more than 830 miles of pipeline.  Website reference link: http://www.spectraenergy.com/Operations/New-Projects-and-Our-Process/New-Projects-in-US/

• Algonquin Incremental Market (AIM) Project – 21.4 miles of pipeline through New York, Connecticut, Rhode Island & Massachusetts; agreements signed; regulatory review to come; completion date – November 2016
• Kingsport Expansion – 15.5 miles of pipeline expansion in Sullivan County, Tennessee, Washington & Smyth Counties, Virginia; project is in regulatory review with Federal Energy Regulatory Commission (FERC)
• NEXUS Gas Transmission – 250 miles of pipeline through Ohio, Michigan, Ontario, Canada; currently in evaluation stage
• Ohio Pipeline Energy Network (OPEN) – 36 miles of new transmission pipeline through Columbiana, Carroll, Jefferson, Belmont & Monroe counties, Ohio; project completion date – 4^th quarter 2015; currently in regulatory review with FERC
• Sabal Trail Transmission Expansion – 474 miles of new transmission pipeline through Alabama, Georgia and Florida; project completion date – May 2017; currently in regulatory review with FERC
• Salem Lateral Project – 1.2 miles of new 16-inch diameter lateral pipeline in Salem, Massachusetts; completion date – November 2015; currently in evaluation state
• Texas Eastern’s Appalachia to Market Expansion (TEAM) – 33.6 miles of new 36-inch diameter pipeline and above-ground facilities (compressor units) in Pennsylvania, West Virginia, Ohio, Kentucky, Tennessee, Alabama, and Mississippi aimed at “bi-directional flow” on the Texas Eastern pipeline system.  Project completion – November 2014; currently in regulatory review with FERC
• Uniontown to Gas City Expansion Project (U2GC) – multiple compressor station and meter station modifications to permit “bi-directional” flow of gas in Indiana, Ohio and Pennsylvania.  Project completion in November 2015.

Spectra Energy’s New Storage projects in the U.S.

• Bobcat Gas Storage Expansion – under construction in St. Landry Parish, Louisiana; 2 caverns with 15 billion cubic feet (Bcf) working capacity of nat gas

² Spectra Energy Betrays Community; 431.5 Thousand Cubic Feet of Nat Gas in Uncontrolled Release – After 6 Months Company Still Refuses to Publicly Disclose Amount & Why – Shale Property Rights, September 27, 2013 http://www.shalepropertyrights.com/blog/?p=1979

NOTE:  This article is cross-posted on the Accountability Central website at this link:  http://www.accountability-central.com/voices-featured-commentators-and-bloggers/mike-benard-columns/  Accountability Central is part of the Governance & Accountability Institute, Inc.

‘Boo-Hoo’ Award for Exxon Mobil CEO

Rex Tillerson;

Property Rights Emerge as Growing Issue;

Is Tillerson a Property Rights ‘Illiterate’?

A recent Wyoming Supreme Court decision noted the shale gas ‘gold rush’ has triggered the law of unintended consequences for energy industry executives and government regulators where property rights are concerned.¹

More property owners and communities have decided they do not want to be dictated to by energy executives who do not have drilling rigs, pipelines, compressors or underground natural gas storage reservoirs in their own backyard.

As such energy industry operations proliferate across the US and Canada, more property owners, communities and organizations are challenging the adverse effects on, first, the environment and now, property rights.

The most recent example of the energy industry’s new-age NIMBY (Not In My Back Yard) is Exxon Mobil Chairman and CEO Rex Tillerson who filed suit, along with ten others, to stop construction on a water tower near his property in Bartonville, Texas, about 30 miles outside of Dallas.²

Water Sold for ‘Fracing’?

Tillerson and his rich neighbors (with million dollar property values) sued the Bartonville Water Supply Corporation (BWSC) for, among other fears, that “BWSC will sell water to oil and gas explorers for fracing shale formations leading to traffic with heavy trucks on FM 407, creating a noise nuisance and traffic hazards.”  [p. 17 of Armey et al. v. Bartonville Water Supply Corp. et al. Number 2012-30982-211, Plaintiffs’ Second Amended Petition, in the District Court of Denton County, Texas, March 15, 2013]

Tillerson and his attorney say the suit is about a water tower not fracking.  While they pedal backward as fast as they can, this lawsuit is a declaration of property rights by the Chairman and CEO of Exxon Mobil which describes itself as “the largest publicly traded … oil and gas company” in the world.

In this court document, they repeatedly assert the right to enjoy their property.  In a staggering statement of hypocritical self-absorption, the lawsuit declares (emphasis added):

“Each of the homeowners built or purchased their homes in Bartonville to live in an upscale community free of industrial properties, tall buildings, and other structures that might devalue their properties and adversely impact the rural lifestyle they sought to enjoy.” [p. 5 of Armey et al. v. Bartonville Water Supply Corp. et al. Number 2012-30982-211, Plaintiffs’ Second Amended Petition, in the District Court of Denton County, Texas, March 15, 2013]

Tell that to “fellow” property owners who live with fracked wells 300 feet from their door or whose property sits on top of underground natural gas storage reservoirs.  Do they not have the same rights as the Tillersons?

Right to Enjoy THEIR Property

The rich folks’ lawsuit is the best legal read currently available, a testament to the double standard of the new NIMBYs of the energy industry.  It is rife with melodramatic whining over their property rights (emphasis added):

• The lawsuit bleats about “the emotional harm they have sustained from the deprivation of the enjoyment of their property because of fear, apprehension, offense, loss of peace of mind, visual blight or other similar acts or circumstances.”   [pp. 11-12 of Armey et al. v. Bartonville Water Supply Corp. et al. Number 2012-30982-211, Plaintiffs’ Second Amended Petition, in the District Court of Denton County, Texas, March 15, 2013]
•  “The construction of the water tower will create a constant and unbearable nuisance to those that [sic] live next to it.  A water tower will have lights on at all hours of the night, traffic to and from the tower at unknown and unreasonable hours, noise from mechanical and electrical equipment needed to maintain and, operate the water tower, and creates and [sic] unsafe and attractive nuisance to the children of the area.”   [p. 17 of Armey et al. v. Bartonville Water Supply Corp. et al. Number 2012-30982-211, Plaintiffs’ Second Amended Petition, in the District Court of Denton County, Texas, March 15, 2013]

So here we have the leader of the largest oil and gas company in the world, whose very name is Latin for “king,” a person of “ordinary sensibilities” (according to the lawsuit).  He and his ten neighbors stand before the world suffering multiple symptoms:

• emotional harm
•  irreparable harm to property value
• “fear, apprehension, offense, loss of peace of mind, visual blight” and more.

Rex: Property Rights ‘Illiterate’

CEO Rex “Not-In-My-Backyard” Tillerson is on record calling the public “illiterate” in science, math and engineering; and what the energy industry does “is a mystery to them and they find it scary.”³

Au contraire, NIMBY Rex.  No mystery here.  The folks whose property rights your company and industry trample with the collusion of government (as in “cartel”) understand it much better than you do.

Is it possible, Rex, you and your wealthy, powerful friends are illiterate on the issue of property rights?  Now that you find the enjoyment of your property  threatened, it’s “scary?”

When your moment of property rights literacy arrived, you failed.

Fellow property owners who have been there, done that – thanks to you – call it poetic justice.

Links & Resources 

¹Wyoming Supreme Court Decision – Among other points, the court noted (emphasis added):

“Impetus for the extensive changes came from increased use of eminent domain proceedings by public utilities and energy related industries, a void in the Wyoming eminent domain law perceived by landowners as allowing abuse of eminent domain by nongovernmental entities, and accelerating market values of land, making one-time payments for compensation less satisfactory.”

See Wyoming Supreme Court decision – Barlow Ranch, Limited Partnership v. Greencore Pipeline Company, LLC; (2013 WY 34; Case Number: S-12-0038; S-12-0039; Decided March 19, 2013); paragraph cited above on p. 11 of the 43-page decision.  The Court’s decision is easy to locate on the internet and is available as a downloadable pdf file.

² Water tower suit involving Exxon’s CEO prompts a fracking fracas:  Fort Worth Star-Telegram by Jim Fuquay, Feb. 24, 2014 – http://www.star-telegram.com/2014/02/24/5597785/water-tower-suit-involving-exxons.html

This story is covered extensively by U.S. and international news media; a download of the lawsuit and response is available via The Wall Street Journal (a subscription site).  For that, see EXXON CEO Joins Suit Citing Fracking Concerns:  The Wall Street Journal by Daniel Gilbert, February 20, 2014.

Or type the following reference to the lawsuit into a search engine and you should be able to download the pdf file:  Armey et al. V. Bartonville Water Supply Corp. et al. Number 2012-30982-211, Plaintiffs’ Second Amended Petition in the District Court of Denton County, Texas.

³ Transcript of CEO Rex Tillerson’s Speech to the Council on Foreign Relations – “The New North American Energy Paradigm,” June 27, 2012:  http://www.cfr.org/north-america/new-north-american-energy-paradigm-reshaping-future/p28630

Tillerson stated in paragraph 16 of his remarks (emphasis added):  “Now, with these new technologies that evolve always come a lot of questions. Ours is an industry that is built on technology, it’s built on science, it’s built on engineering, and because we have a society that by and large is illiterate in these areas, science, math and engineering, what we do is a mystery to them and they find it scary. And because of that, it creates easy opportunities for opponents of development, activist organizations, to manufacture fear.”

NOTE:  This article is cross-posted on the Accountability Central website at this link:  http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-boo-hoo-award-for-exxon-mobil-ceo-rex-tillerson-property-rights-emerge-as/  Accountability Central is part of the Governance & Accountability Institute, Inc.

Sabal Trail Pipeline – Spectra Energy’s Proposed Gas Transmission

Pipeline Draws Citizen Opposition in 3 States:

Georgia, Florida, Alabama

Spectra Energy Builds on its Reputation for

Cynical Social Responsibility

Citizens protest Sabal Trail pipeline in Valdosta, Georgia, at County Commissioners meeting. Photo courtesy Matthew Woody, The Valdosta Daily Times.

Spectra Energy (NYSE: SE), the $5 billion pipeline and underground natural gas storage company, is now in a position where its reputation precedes it.  When it holds community meetings to sell a proposed natural gas transmission pipeline, communities show up with pitchforks, figuratively speaking.

Despite airy promises about “stakeholder engagement” and commitment to “transparency and accountability,” word about Spectra Energy’s lack of responsiveness and ongoing problems at existing facilities is spreading to communities across states where it hopes to build more pipelines and compressor facilities.^{1, 2}

For example, the Sabal Trail pipeline is a proposed 474-mile natural gas transmission pipeline Spectra Energy hopes to build through Alabama, Georgia and Florida.  Current plans call for 7 large compressor stations along the pipeline route (to ‘push’ the gas through).

This is a joint venture between Spectra Energy and NextEra Energy, Inc.  The contractor is Florida Power & Light (the key recipient for the nat gas).  For details, see the Sabal Trail Transmission website: http://www.sabaltrailtransmission.com/

It did not take “interstate” property owners long to mobilize.  Here is a link to their energetic website: http://spectrabusters.org/  and one for their Facebook page: https://www.facebook.com/#!/spectrabusters

Lessons from New York

Spectra Energy’s track record leaves a negative brand image across many states and in Canada.³

In New York, for example, based on experience with a Spectra Energy pipeline, Clare Donohue, a founding member of the Sane Energy Project, told this writer (emphasis added):

“It’s apparent that Spectra is enlarging and adding to their east coast network from south to north, all aimed at improving their distribution to planned export terminals in Sable Island, Nova Scotia.

“These connected projects are being illegally segmented for separate review by the Federal Energy Regulatory Commission (FERC).  Community resistance is intense all along the path, from Florida to Georgia to New Jersey, New York and Connecticut.

“FERC should review the Spectra system as a whole….

“FERC and the Department of Energy also need to LISTEN to citizens, who are sending a message loud and clear that these projects are NOT a ‘public convenience.’  In fact they are viewed as being shoved down the throat of community after community, and are of benefit only to the corporation itself.”  Website: http://saneenergyproject.org/

Action in Georgia & Florida

Property owners in Georgia and Florida quickly combined their forces to challenge Spectra Energy and FERC.  Their objections range from safety to property rights to challenging the necessity for the pipeline.

Sandra Jones, a property owner in Moultrie, Georgia, ran the numbers and concluded in comments to FERC (emphasis added):⁴

“There is no need for this new pipeline.  Sabal Trail is misrepresenting the truth. In a state where there are only 9,031,051 households, why is enough natural gas needed to produce power for over 22,000,000 households needed? These figures only represent the three major [pipe]lines and do not consider the KinderMorgan line or other smaller ones also coming into the state.

“It becomes very obvious this natural gas is intended for exportation and will not benefit any of the citizens in Alabama, Georgia, or Florida if one looks at the business models of Spectra and NextEra Energies.”

Lessons from New Jersey

In New Jersey, Dale Hardman, Founder & President of NO Gas Pipeline, told this writer (emphasis added):

“Spectra is totally untrustworthy!

“We found out from the beginning we must declare as a formal intervenor to sue FERC which regulates ALL interstate pipelines. They trump ALL City and State ordinances. You cannot get an injunction to stop a pipeline. ONLY by suing in federal court can a court overrule FERC.

“FERC was established by the National Gas Act and appointed by the President.  We are awaiting D.C. District Court judge to hear oral arguments for our brief.”  Website: http://nogaspipeline.org/

PHMSA Official Avoids Pipelines

An official of the federal Pipeline and Hazardous Materials Safety Administration (PHMSA) admits he would avoid buying or building a home near a pipeline.

The PHMSA official, Bill Lowery, attended the annual conference of the Pipeline Safety Trust in New Orleans.⁵  Based in Houston,Lowery is Manager of Community Assistance & Technical Services for PHMSA’s Southwest Region.

A video of Lowery’s admission – or advice – appears on DeSmogBlog during an interview conducted by Julie Dermansky.⁶  (See footnote #6 under Links & Resources below.)

Dermansky reports:

“A federal pipeline safety official admitted on camera recently that he made a point of ensuring his home wasn’t in the path of any pipelines before buying it, and that he wouldn’t advise anyone to build in the path of a pipeline.

When asked what he would do if his home were in the path of a transmission pipeline, Lowery replied (emphasis added):

“Here is what I did when I bought my house — I looked on all the maps, I looked for all the well holes. I found there is nothing around me but dry holes and no pipelines.  And it’s not because I’m afraid of pipelines, it’s not because I think something will happen.  It’s because something could happen. … You’re always better off, if you have a choice….”

He trailed off before finishing his sentence, but added that, “If I was building a house, I wouldn’t build it on a refinery, … I wouldn’t build it on a pipeline, because they’re all industrial facilities. That’s just the reality.”  [See blog & video link in footnote #6 under Links & Resources below.]

New NIMBYs

Two assessments of Mr. Lowery’s comment:  First, it is a continuing illustration that the new NIMBYs (Not In My Back Yard) are found among energy industry executives and regulators.

Second, Mr. Lowery is correct – “you’re always better off, if you have a choice.”  Unfortunately, property owners staring down the barrel of an eminent domain lawsuit or compulsory integration laws in most states, do not have a choice.  They do not stand on a level playing field legally or politically.

Eminent domain and compulsory integration laws put landowners in a face-off with the equivalent of a cartel comprised of energy companies and government, because the law allows corporations – backed by government – to control pricing and competition (i.e., “just compensation” and what constitutes “public interest”).

Links & Resources

¹ Spectra Energy alleges it practices the following principles on its website under a section titled, Acting with Integrity (emphasis added) – “We conduct our business with integrity, transparency and accountability. We recognize that our stakeholders want to understand how we make decisions, manage our operations and hold ourselves accountable to our commitments and society’s expectations.”  Website link: http://www.spectraenergy.com/Sustainability/Economic/Acting-with-Integrity/

² Several Spectra Energy web pages are devoted to “Stakeholder Engagement” – see this Q&A which cites two “Directors of Stakeholder Engagement,” Susan Waller and Andrea Grover.  Those of us with experience in dealing with Spectra Energy and/or owning property near Spectra Energy facilities will tell you that these are laughable platitudes: http://www.spectraenergy.com/Sustainability/Stakeholder-Engagement/A-on-Stakeholder-Engagement/

³ Spectra Energy’s track record – for sourced information refer to the following:

Spectra Energy Watch – http://www.shalepropertyrights.com/blog/?page_id=1887

Spectra Energy Betrayal – http://www.shalepropertyrights.com/blog/?p=1979

See also testimonials from property owners who live with Spectra Energy facilities:

Citizen Regulators 1 – http://www.shalepropertyrights.com/blog/?p=1328

Citizen Regulators 2 – http://www.shalepropertyrights.com/blog/?p=1342

Citizen Regulators 3 — http://www.shalepropertyrights.com/blog/?p=1353

Citizen Regulators 4 — http://www.shalepropertyrights.com/blog/?p=1362

⁴ Sandra Jones’ submitted comments to the Federal Energy Regulatory Commission (FERC) are also available on the SpectraBusters website at this link:

http://spectrabusters.org/2013/12/31/stop-this-rape-of-the-stakeholders-homes-farms-and-lands-sandra-y-jones-to-ferc/

They are filed on the FERC eLibrary in Docket/Project PF14-1-000 at this link: http://elibrary.ferc.gov/idmws/file_list.asp?accession_num=20131231-5102

⁵ Pipeline Safety Trust is a nonprofit public charity formed after a deadly pipeline explosion in Bellingham, Washington in 1999.  Its mission is to promote “pipeline safety through education and advocacy, increased access to information, and partnerships with residents, safety advocates, government, and industry, resulting in safer communities and a healthier environment.”  Carl Weimer is the Executive Director.  Website: http://pstrust.org/

⁶ “Just the Reality:” Pipeline Safety Official Admits He’d Avoid Buying A Home Near Pipelines Like Keystone XL, byJulie Dermansky 12-3-13, DeSmogBlog

http://www.desmogblog.com/2013/12/02/something-could-always-happen-pipeline-safety-official-admits-he-d-avoid-buying-home-near-pipelines-keystone-xl

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-sabal-trail-pipeline-spectra-energys-proposed-gas-transmission-pipelin/   Accountability Central is part of the Governance & Accountability Institute, Inc.

     Spectra Energy Betrays Community;

Latest:  431.5 Thousand Cubic Feet of Nat Gas in

Uncontrolled Release From Spectra Energy Facility – After 6 Months

Company Still Refuses to Publicly Disclose Amount & Why

[We at Spectra Energy are] ‘Steadfast in our belief that this process needs to be as open, honest and publicly transparent as possible’

Marylee Hanley, Spectra Energy’s Director of Stakeholder Outreach

Slick words from a Spectra Energy executive who publicly touts the company’s “continual communication and …. Discussion with stakeholders to address their issues and concerns.”   By stakeholders, the company means landowners living near its facilities.¹

Yet six months after a two-day incident in March at its huge Steckman Ridge facility in Bedford County, Pennsylvania, Spectra Energy still refuses to publicly say how much methane (toxic volatile organic compounds) was vented in an uncontrolled release and why it happened.

Through their own efforts, however, property owners now know that Spectra Energy’s uncontrolled leak in this latest incident amounts to 431.5 thousand cubic feet of natural gas vented to the atmosphere over a two-day period.²

Enough natural gas to power five homes in the Northeast for a year, according to the Energy Information Administration of the U.S. Department of Energy. Hardly a “small volume” as Spectra Energy officials claim.

Moreover, documents from the Pennsylvania Department of Environmental Protection (DEP), reveal that the uncontrolled release was tied to a malfunctioning electronic level switch in a dehydration unit.

No wonder the federal Pipeline & Hazardous Materials Safety Administration (PHMSA) is citing valve and other problems across many parts of Spectra Energy’s system and leveling 6-figure fines.³

In contrast to the company’s alleged “steadfast … belief” in open communication, Spectra Energy initially dismissed concerns of residents in Clearville (Bedford County), PA, who called 911 in March after hearing firecracker-like noises and seeing what appeared to be smoke coming from the company’s compressor station.

 First – Only “Air” Was Released!

The same Marylee Hanley, Director of Stakeholder Outreach for Spectra Energy – who piously touts the company’s commitment to a communication process “as open, honest and publicly transparent as possible” – declared to the Associate Editor of the Bedford Gazette, “Nothing was released.  There was no smoke.  No incident.” ⁴

In fact, Hanley said that the only thing that was released was “air,” according to the Bedford Gazette.

 Then – Only “Small Volume” of Nat Gas Escaped

By the next day, the company was forced to retreat:  It admitted there was an uncontrolled release of methane and other hydrocarbons; but claimed only a “small volume” escaped.

Broken promises and repeated uncontrolled release of toxic volatile organic compounds (VOCs) raise questions about whether Canadian-born CEO Greg Ebel knows how often Spectra Energy managers fail to do what the company says it does.

CEO Ebel has never publicly commented on the four years of ongoing problems at the Steckman Ridge facility.  Nor has he ever visited with property owners – the company’s stakeholders – to demonstrate his own “steadfast belief” in a communication process “as open, honest and publicly transparent as possible.”

Risk Management at Spectra Energy

The U.S. Securities and Exchange Commission (SEC) repeatedly reminds directors at publicly held companies like Spectra Energy (NYSE: SE) that they have an obligation to oversee their company’s risk management and risk strategy and to identify both risks and opportunities for improvement.

In 2010, I wrote to the Board of Directors about the risk related issues at the Steckman Ridge facility – all of which have been covered by this website.  On behalf of the Board, General Counsel Reginald Hedgebeth replied.  Among his key points [emphasis added]:

“I want to assure you that Spectra Energy’s Board is aware of the various items you reference in your letter. … Spectra Energy maintains a robust risk management process … that ensures … the Board of Directors is actively involved in overseeing strategic and operational risks….”

“With respect to your concerns regarding the Steckman Ridge storage facility”  — here he cites the oversight of federal and state regulators such as the Federal Energy Regulatory Commission, PA DEP, PHMSA, and the EPA.

Interestingly, Counsel Hedgebeth goes on to write:  “Further, Spectra Energy has taken a number of steps at the Steckman Ridge facility to respond to community concerns.  Mechanical and operational changes have been made to reduce the noise associated with station activities.  In addition, we have minimized our lighting and planted over400 trees around the facility.” 

 Not A Tree Farm

Spectra Energy isn’t running a tree farm in Clearville, PA. The company’s stakeholders ask questions about substantive issues and get noise reduction, lighting and trees.

Nothing has changed since 2010.  The Board’s cosmetic response to ongoing operational problems (shutdowns, blowdowns, uncontrolled methane leaks and valve problems) is as empty as management platitudes about “steadfast belief” in transparency, accountability and stakeholder engagement.

There is an increasing level of safety and environmental risk taking by management.  A reasonable person would ask how long can Board members get away with tolerating it?

Spectra Energy’s huge Steckman Ridge facility is the elephant in the room in Clearville, PA.  It is a 12-billion cubic feet underground natural gas storage reservoir on 43 acres, with a nearly 5,000 horsepower compressor station, 13 injection/withdrawal wells and related pipeline infrastructure. 

It stores and pumps shale gas through transmission pipelines across Pennsylvania and the Northeast.  Spectra Energy and its pipeline division, Texas Eastern, are pushing to expand its presence in Pennsylvania, Ohio, New Jersey and other states.

Meanwhile, a ring of health, water and operational complaints surround the Steckman Ridge facility that began operations in 2009.

 Compressor Technology Not New

Compressor technology is not new, so why do engineers like Ken Shutter and Dwayne Teschendorf who work for Spectra Energy CEO Greg Ebel have so many problems at this facility?  Does Ebel know or is he indifferent?   Is the Board of Directors likewise indifferent?

For example, based on unofficial record keeping by neighbors (aka, Spectra Energy stakeholders), there have been nearly 60 shutdowns, blowdowns and related incidents at the Steckman Ridge compressor station between August 2009 (which included the first, big emergency shutdown) and more recent incidents in March and September 2013.

Per the compressor itself, according to a 2009 response from Spectra Energy (the company no longer responds to stakeholder questions), the compressor station houses one 4,735 horsepower reciprocating compressor.

This unit includes a 16-cylinder, natural-gas powered engine that drives a 6-cylinder gas compressor used to support injection and withdrawal of natural gas into the underground storage field (located in the Oriskany formation) by boosting pressure when and where necessary.

Planting trees is not the answer.  But CEO Ebel and his Board of Directors know that, don’t they?

Links & Resources

¹ Spectra Energy:  Expanding Infrastructure – Presentation to Marcellus Summit by Marylee Hanley, Spectra Energy’s Director of Stakeholder Outreach; Sponsored by the Interstate Oil & Gas Compact Commission at Penn State University (November 17, 2011).  See pdf file & refer to p. 10 under “Outreach”:  Hanley

² Memo provided by Pennsylvania Department of Environmental Protection in which Spectra Energy details the uncontrolled release of 431.5 thousand cubic feet of methane and other hydrocarbons (Volatile Organic Compounds or VOCs), and its cause.  See pdf file:  DEP SE Steckman Ridge March 2013 Release

³ PHMSA issued Spectra Energy CEO Greg Ebel a “Final Order” and civil penalty of $134,500 related to violations across several states. Among other issues, the company was cited for failure regarding valve inspections.  PHMSA states:  “An operator that fails to follow its own procedures for valve inspections increases the risk of preventable pipeline accidents.”  Issued in December 2012.  Reference Link: http://www.phmsa.dot.gov/staticfiles/PHMSA/DownloadableFiles/420121009_Final%20Order_12212012.pdf

⁴ Spectra Energy ‘Backtracks’ on Methane Incident – Shale Property Rights (formerly Spectra Energy Watch), March 27, 2013   http://www.shalepropertyrights.com/blog/?p=1807

NOTE:  This article is cross-posted on the Accountability Central website at this link:  http://www.accountability-central.com/nc/single-view-default/article/spectra-energy-betrays-community-latest-4315-thousand-cubic-feet-of-nat-gas-in-uncontrolled-rele/  Accountability Central is part of the Governance & Accountability Institute, Inc.

New Energy Industry Campaign Pushes Fracking

For New York State; Sends Message to Governor, Legislators;

But Does “Not Warrant The Accuracy Of Information” on Website

The American Petroleum Institute (API) is sponsoring a multimedia campaign focused on New York State that recycles an old and discredited message:

“… there’s never been a single case of groundwater contamination from hydraulic fracturing.” Link: http://www.empireenergyforum.com/topics/hydraulic-fracturing

In an ironic footnote at the bottom of every page of the website, there is this warning in fine print (emphasis added):  “Any sponsors of this site do not warrant the accuracy of information contained herein, and expressly disclaim any liability whatsoever for the use of or reliance on the information presented.”

For those of us with actual experience in dealing with the energy industry, that statement summarizes the ever-present trust issue.

To the point of the multimedia campaign, the issue is the entire drilling process – from fracturing to cementing – not a limited segment of it.  For example, Richard Liroff, PhD., executive director of the Investor Environmental Health Network, states (emphasis added):

“Such risks [of shale drilling] are associated with the broad life cycle of shale operations including, for example, the transporting and storing water, waste and chemicals.  They are not limited to concern about hydraulic fracturing in its narrowest, technical sense.”¹

Often, the most revealing statements regarding the risks of drilling via high-volume horizontal fracturing (HVHF) come from industry.

Industry Warnings on Safety, Trust

For example, Schlumberger (NYSE – SLB), a world leader in the oil and gas industry, warns:  “Despite recent advances in the cementing of oil and gas wells, many of today’s wells are at risk. … The environmental impact of contaminating a single fresh water aquifer is extremely serious.”²

The loss of public trust by energy companies is also well documented and acknowledged by industry executives across North America.³

Even a pro-industry white paper on the “Global Anti-Fracking Movement,” points out that, “… companies have lost public trust by discounting the legitimacy of grievances, prioritizing trade secrets over transparency and engaging government rather than communities.” ⁴

In addition, unlike API, the pro-industry white paper indicates that water contamination is an issue.  On page three of the white paper it states:

“For both coal and shale gas wells, water produced from the well (also known as ‘produced water’) is saline and toxic in high concentrations, requiring similar types of handling, treatment and disposal.”

Jonathan Wood, Associate Director of Strategic Analysis for Control Risks in London, explained to this writer in an e-mail: “… the paper was not commissioned by an external party, but rather produced as part of our efforts to interrogate topics and issues of potential interest to our clients and the wider risk management community.”

He adds that, “The industry, as we suggest in the paper, is beginning to pay much closer attention to this set of issues, out of desire and necessity.”

Perhaps not everyone gets the message.  The API’s multimedia campaign in New York State is supplemented by robo calls and weekly mailers.

One such mailer states:

13,000 oil and gas wells in New York

1 million hydraulically fractured nationally.

Zero incidents of groundwater contamination from hydraulic fracturing.

In contrast, the New York Department of Environmental Conservation (DEC) told this writer:  “There are approximately 4,000 abandoned or unreported wells on DEC’s priority plugging list.  There are approximately 35,000 wells for which DEC has no records.”

Neither New York State nor Pennsylvania track well failure rates.  Without knowing the failure rate, how does one measure the success rate?

Ask Right Question

Anthony Ingraffea, Ph.d., P.E., is the Dwight C. Baum Professor of Engineering at Cornell University.  In response to my question, he commented on the claim of “zero incidents of groundwater contamination from hydraulic fracturing.”

“The right question to ask and have answered is:  ‘How many private water wells have experienced abrupt increases in one or more contaminants following nearby gas well development activities?’

“The answer is, nationwide, thousands in the last decade alone,” he states.

New York government officials often cite Pennsylvania as a benchmark for HVHF drilling.

Pennsylvania Benchmark

Yet even incomplete records from the Pennsylvania Department of Environmental Protection (DEP) reveal that “oil and gas development damaged the water supplies for at least 161 Pennsylvania homes, farms, churches and businesses” in the five-year period between 2008-2012, according to The Sunday Times-Tribune of Scranton, PA.⁵

As interesting, those records had to be pried from the DEP through a court order.  Given the sloppy record keeping acknowledged by DEP, it is known that “the count is not exhaustive.”

In addition, a count of 18 contaminated water wells is collapsed by DEP to a count of one incident, as reported by The Sunday Times-Tribune.

Based on extensive data collected from DEP by EARTHWORKS’ Oil & Gas Accountability Project⁶, two additional benchmarks emerge from the Pennsylvania experience:

• The number of violations at oil and gas wells has nearly tripled since 2008.  In 2011, for example, 4,069 violations were recorded by DEP, up significantly from 1,515 in 2008.  [See chart labeled “PA Enforcement Data.  Source:  EARTHWORKS]
• Marcellus shale wells are an increasing percent of total violations.  In 2010, 45% of the total number of violations came from Marcellus shale wells – 1,273 out of a total of 2,861.
• For many companies, well practices are getting worse not better over time.  “All but two companies (Chief and Anadarko) had more violations in 2011 than in previous years, and many operators have had consistently large numbers of violations for three years running (e.g., Chesapeake, Cabot, Chief, Range, XTO, Ultra),” according to EARTHWORKS.  [See chart labeled “Table 9 Trends.”  Source:  EARTHWORKS]

Meanwhile, “New York struggles to adequately govern its existing oil and gas wells, and DEC is not prepared to oversee the expected shale gas boom,” as noted in an EARTHWORKS’ “Enforcement Report – NYS DEC.”⁶

Among other warning signs, “75 percent of active oil and gas wells in New York were not inspected in 2010.”  That’s nearly 8,000 wells.

To compound the problem, “Unlike other state oil and gas agencies, New York’s DEC does not yet keep oil and gas violations in a publicly accessible electronic database, not does it publish statistics on violations in the DMR [Division of Mineral Resources] annual report or on its web site,” according to EARTHWORKS.

Transparent Lip Service

Both government and industry tout commitment to transparency – usually until citizens want specific answers to drilling and regulatory questions.  In New York State, Democrat Governor Andrew Cuomo launched a “secret” health review that will supposedly guide a decision on HVHF.  Health Commissioner Nirav Shah is charged with the task.

For a change, even industry is fed up with the secrecy.  As reported in The Ithaca Journal⁷:

“No one – and certainly no one in industry — has any idea of what this so-called health review is,” said Karen Moreau, executive director of the New York State Petroleum Council. “You would think that if there was some sort of comprehensive review being done by the health commissioner, they certainly would at least involve the public, the industry, the environmental groups in what they’re doing.”

Unless, that is, New York State does “not warrant the accuracy of information” and disclaims “any liability whatsoever” in its evaluation of shale drilling.

Links & Resources

¹ Investors Bring $1 Trillion of Pressure on Hydraulic Fracturing Industry; Demand Disclosure & Commitment to Measurable Goals – Spectra Energy Watch, June 10, 2012:  http://www.spectraenergywatch.com/blog/?p=1614

² This warning is from the introduction to Schlumberger’s book, Well Cementing (Second Edition, 2006) by Eric B. Nelson and others.

• See also, “From Mud to Cement – Building Gas Wells,” Schlumberger, by Claudio Brufatto and others, Oilfield Review, Autumn 2003, pp. 62-76 – http://www.slb.com/~/media/Files/resources/oilfield_review/ors03/aut03/p62_76.ashx
• See also Does Cement Crack? Part 1 – Spectra Energy Watch: http://www.spectraenergywatch.com/blog/?p=1393

³ Energy leaders urge transparency to win public support – Houston Chronicle, by Zain Shauk, Simone Sebastian, March 7, 2012 – http://www.chron.com/business/article/Energy-leaders-urge-transparency-to-win-public-3390421.php

• See also, Pipeline CEOs say they will work to restore public confidence around safety – Calgary Herald, by Amanda Stephenson, June 5, 2013 – http://www.calgaryherald.com/business/Pipeline+CEOs+they+will+work+restore+public+confidence+around+safety/8484452/story.html

⁴ The Global Anti-Fracking Movement – What it Wants, How it Operates and What’s Next –  See p. 2.  For a downloadable copy of this white paper: http://www.controlrisks.com/OurThinking/Pages/The-Global-Anti-Fracking-Movement.aspx

⁵ Sunday Times review of DEP drilling records reveals water damage, murky testing methods – The Times-Tribune, by Laura Legere, May 19, 2013 http://thetimes-tribune.com/news/sunday-times-review-of-dep-drilling-records-reveals-water-damage-murky-testing-methods-1.1491547

⁶ EARTHWORKS – Several relevant white papers are available for download on this website.  The reports compile and analyze shale gas/oil data from regulatory agencies in many states.  Refer to the following:

• Breaking All the Rules – The Crisis in Oil and Gas Regulatory Enforcement: http://www.earthworksaction.org/library/detail/breaking_all_the_rules_the_crisis_in_oil_and_gas_regulatory_enforcement#.UdArTq4mIw8
• Enforcement Report – NYS DEC: http://www.earthworksaction.org/library/detail/enforcement_report_nys_dec – .UdAs-q4mIw8
• Enforcement Report – PA DEP: http://www.earthworksaction.org/library/detail/enforcement_report_pa_dep – .UdAt5q4mIw8

⁷ Transparency battle unites fracking advocates, opponents – The Ithaca Journal, by Jon Campbell, May 31, 2013: http://www.lohud.com/article/20130531/NEWS/305310056/Transparency-battle-unites-fracking-advocates-opponents

NOTE:  This article is cross-posted on the Accountability Central website at this link:  http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-control-risks-api-targets-new-york-state-with-multimedia-campaign-to-push/    Accountability Central is part of the Governance & Accountability Institute, Inc.

Spectra Energy ‘Backtracks’ on Methane Incident

First: “Nothing Released …. No Smoke …. No Incident”

Then Admits:  Methane & Hydrocarbons Released;

Investor Group Wants Report on Fugitive Methane Emissions

From Spectra Energy Board of Directors

Spectra Energy Corporation (SE, NYSE) was forced to backtrack on dismissive assertions it made about a nighttime incident at its huge natural gas compressor station in Bedford County, PA, after persistent neighbors and a reporter kept pressing the company and state regulators for facts.¹

The Spectra Energy facility – known as Steckman Ridge – is a 12-billion cubic feet underground natural gas storage reservoir with a 5,000 horsepower compressor station, 13 injection/withdrawal wells and related pipeline infrastructure in Monroe Township (Bedford County) Pennsylvania.  It is located near the Maryland border, about two hours from Washington, DC.

On the evening of March 9, neighbors heard snapping and popping sounds like fire crackers coming from the facility; then they saw what looked like smoke coming from the compressor station.  They called 911 and fire trucks from the nearby town of Everett rolled to the scene.  The noise lasted 2-3 hours, according to neighbors.

Spectra Energy:  “No Incident”

Spectra Energy’s initial response was autocratic and dismissive:  “Nothing was released. There was no smoke. No incident.”  This was from Marylee Hanley, a “Director of Stakeholder Outreach” located nearly 500 miles away in the greater Boston area.

Then the story began to change, thanks to the persistence of nearby Property Owner Angel Smith and Associate Editor Elizabeth Coyle, of the Bedford Gazette.

They kept the pressure on Spectra Energy and the Pennsylvania Department of Environmental Protection (DEP).  With its initial “no incident” response crumbling, the company apparently substituted a different Director of Stakeholder Outreach from its Houston headquarters.

This one, Andrea Grover, admitted what the Pennsylvania DEP had already acknowledged:  There was a release of methane and other hydrocarbons; but so far the company refuses to say how much.

But as reported in the Bedford Gazette, Spectra Energy is legally permitted to emit literally tons of pollutants per year from this single facility.  For example:  50 tons annually of volatile organic compounds; 25 tons of hazardous air pollutants, according to the DEP.

Investors Want Methane Emissions Data

Timing is everything in life.  As it turns out, a large socially responsible investor group, Trillium Asset Management, with over $1 BILLION in assets under management, has filed a shareholder resolution requesting a report from Spectra Energy’s Board of Directors on its fugitive methane emissions.  Reference link: https://www.ceres.org/incr/engagement/corporate-dialogues/shareholder-resolutions/spectra-energy-fugitive-methane-emissions-2013

Trillium Asset Management said:

“We believe Spectra Energy’s social license to operate is at risk and the company has a responsibility to implement a program of measurement, mitigation, and disclosure.” 

If that weren’t enough evidence of ongoing problems with Spectra Energy operations – as recently as December, the Pipeline Hazardous Materials Safety Administration (PHMSA), issued Spectra Energy CEO Greg Ebel a “Final Order” and civil penalty of $134,500 related to various violations across several states.  Included in this Order, the company was cited for failure regarding valve inspections.

Failure Regarding Valve Inspections

In fact, PHMSA said the company failed to follow its own Standard Operating Procedure (SOP) 5-5010, Valve Inspection and Maintenance, which requires annual valve inspections, but at least at intervals not exceeding 15 months, “for valves that might be required during an emergency.”

The Notice alleged that between 2008 and 2011, multiple valves at Spectra Energy’s pipeline division (Texas Eastern) facilities in Texas, Louisiana, and Arkansas had not been partially operated as part of the annual inspections.

Increases Risk of Preventable Pipeline Accidents

The PHMSA document notes (emphasis added):

“Respondent [i.e., Spectra Energy], however, conceded that at the time of the inspection SOP 5-5010 required inspection and partial operation of all valves, both emergency and non-emergency, and that it had not complied with this procedure.  An operator that fails to follow its own procedures for valve inspections increases the risk of preventable pipeline accidents.”

Reference Link (see pages 3-4 of PHMSA’s Final Order):  http://www.phmsa.dot.gov/staticfiles/PHMSA/DownloadableFiles/420121009_Final%20Order_12212012.pdf

Regarding valve problems and methane emissions at its Steckman Ridge facility, Spectra Energy initially maintained that there was a normally operating valve release of “air,” according to the Bedford Gazette’s account.

Then the company admitted (emphasis added), a “small pressure relief valve was activated when the valve detected a higher than normal pressure in that section of the station.”  As a result, a “small volume of natural gas” was released, according to the report in the Bedford Gazette.

Since the company is committed to the word “small,” why not answer the question about how much and exactly what was released?  But this incident and Spectra Energy’s defensive behavior raises more questions.

Was There An Unexpected Event?

For example, while events were unfolding at the Steckman Ridge compressor station, I contacted a source familiar with such gas operations.  Based on the eyewitness accounts, this source stated (emphasis added):

“The first thing I thought of was a relief valve opening and closing because they open and close with tremendous pressure applied to the valve and the instantaneous starting and stopping of flow through the valve is noisy, given the high pressure.

“My question to Spectra Energy would be whether the valve actuated for routine testing purposes or was there an unexpected event that occurred?  If there was an unexpected event what was the reason?”

This is yet another question that Spectra Energy has, so far, declined to answer.  Will the Pennsylvania DEP pursue this question with the company?

As Spectra Energy began to backtrack from its initial denial, the source noted, “It doesn’t surprise me that they tried to pull a fast one because they think nobody understands their business but them.  Just arrogance.”

Michelle Beegle, who lives one-half mile from the compressor station is quoted in the Bedford Gazette as saying:  “’It just goes to show you how they are lying’ she said.  ‘I don’t believe a word they say, the company or DEP.’”

For those who look for fact-based answers, Spectra Energy has a long, documented record of problems.  It includes violations, explosions and fines (including a 15 million dollar federal fine).  Refer to Footnote #2 under Links & Resources for an easy-to-use guide to the company’s track record.²

Further, Spectra Energy’s history at its Steckman Ridge facility includes an on-the-record statement filed by Spectra Energy with the Federal Energy Regulatory Commission (FERC).  In its own document, Spectra Energy uses Webster’s dictionary definition of “lying” to support the company’s assertion that, “There is no evidence of willful ‘lying’ by any Project Representative to landowners.”   See Footnote #3 under Links & Resources for context and a downloadable pdf file of Spectra Energy’s document that it submitted to FERC.³

Spectra Energy has had operational problems from the beginning at its Steckman Ridge facility.  It is time for answers – not corporate platitudes about “Stakeholder Outreach.”

Links & Resources

¹ Spectra backtracks on gas incident – Bedford Gazette, March 15, 2013, by Elizabeth Coyle, Gazette Associate Editor – two pdf files:

Spectra Backtracks p. 1 BG 3-15-13.pdf Spectra Backtracks p. 1 BG 3-15-13

Spectra Backtracks p. 2 BG 3-15-13.pdf  Spectra Backtracks p. 2 BG 3-15-13

See also the online edition (subscription required): http://www.bedfordgazette.com/news/2013-03-15/Front_Page/Spectra_backtracks_on_gas_incident.html

Residents report loud sounds at compressor station – Bedford Gazette, March 12, 2013, by Elizabeth Coyle, Gazette Associate Editor – two pdf files:

Residents report loud sounds, page 1 BG 3-12-13.pdf  Residents report loud sounds, page 1 BG 3-12-13

Residents report loud sounds, page 2 BG 3-12-13.pdf  Residents report loud sounds, page 2 BG 3-12-13

See also the online edition (subscription required): http://www.bedfordgazette.com/news/2013-03-12/Front_Page/Residents_report_loud_sounds_at_compressor_station.html

² Spectra Energy’s Track Record is available from public sources.  Following are highlights with links that include additional sources and documents:

1)    Top Civil Penalty Ranking from EPA – Spectra Energy’s Texas Eastern pipeline division is ranked number seven on the EPA’s list of the “Top Civil Enforcement Cases Based on Penalty Assessed Through EOY FY 2009.” The National Enforcement Trends (NETs) document on the EPA website shows a $15 million penalty for discharging highly toxic PCBs – polychlorinated biphenyls – at 89 sites along the company’s 9,000-mile gas transmission pipeline running from Texas to New Jersey.

EPA Link:  http://www.epa.gov/oecaerth/resources/reports/nets/nets-j1-topcivpencasesofalltime.pdf

Los Angeles Times Link:  http://articles.latimes.com/1989-10-21/news/mn-191_1_record-fine

TIME Magazine Link:  http://www.time.com/time/magazine/article/0,9171,966034,00.html

2) PCB Contamination (PolyChlorinated Biphenyls) – Spectra Energy acknowledges in its Form 10-K (filed with the Securities and Exchange Commission on Feb. 27, 2012) that highly toxic PCBs remain in its pipeline system (emphasis added):  ”The Toxic Substances Control Act, which requires that polychlorinated biphenyl (PCB) contaminated materials be managed in accordance with a comprehensive regulatory regime. Because of the historical use of lubricating oils containing PCBs, the internal surfaces of some of our pipeline systems are contaminated with PCBs, and liquids and other materials removed from these pipelines must be managed in compliance with such regulations.”  See p. 23 (5th bullet) of Spectra Energy’s 10-K filing, under the subhead, “Environmental Matters.”

Pdf file:  SpectraEnergyCorp10K2011

Spectra Energy Watch – Spectra PCBs 2: http://www.spectraenergywatch.com/blog/?p=498

Spectra Energy Watch – Spectra PCBs?: http://www.spectraenergywatch.com/blog/?p=480

3) Underground Natural Gas Reservoir Explosions – Spectra Energy’s underground natural gas storage reservoir outside of Houston (Moss Bluff) experienced catastrophic failure in 2004 with two explosions, 6 1/2 days of fire and two evacuations.  An estimated 6 bcf of natural gas was consumed during the fire.

Industrial Fire World (IFW) Pdf: What Lies Beneath > Industrial Fire World

USA TODAY Link:  http://www.usatoday.com/news/nation/2004-08-20-gas-explosion_x.htm?csp=36

Gas Storage And Single-Point Failure Risk Pdf:  article_singlepointfailurerisk

Spectra Energy Watch – Moss Bluff Incident:   http://www.spectraenergywatch.com/blog/?p=390

4) “Unlawful Conduct” at Steckman Ridge– The Pennsylvania Department of Environmental Protection (DEP) issued two Notices of Violation in 2009 for Spectra Energy’s “unlawful conduct” during the first year of operation at its Steckman Ridge compressor station in Clearville (Bedford County), PA.  Spectra Energy’s “unlawful conduct” violated air quality and clean stream regulations of the Pennsylvania Code, according to the Pennsylvania DEP.

PA DEP Pdf:  DEP Fines Steckman Ridge:Spectra Energy

Philly IMC Link:  http://www.phillyimc.org/en/natural-gas-compressor-station-coats-farmland-used-gear-oil

Altoona Mirror Link:

http://www.altoonamirror.com/page/content.detail/id/528428/DEP-fines-gas-company–22K.html

Altoona Mirror Link: http://www.altoonamirror.com/page/content.detail/id/526358/Gas-company–Automatic-shutdown-not-an-issue.html

Spectra Energy Watch – Emergency Shutdown: http://www.spectraenergywatch.com/blog/?p=372

Spectra Energy Watch – Spectra Promises: http://www.spectraenergywatch.com/blog/?p=466

³ Understanding the Corporate Culture in its own words:  Definition of lying as a defense – Spectra Energy filed a 32-page report with the Federal Energy Regulatory Commission (FERC) exonerating itself regarding complaints about abusive and unethical behavior toward landowners as part of its 12 billion-cubic-feet underground gas storage reservoir in Clearville, PA, known as Steckman Ridge.

The original report is accessible on the Spectra Energy Watch website and it is titled, “Inquiry Report — Response to Benard Allegations.”  In its official report, Spectra Energy uses the dictionary definition of lying as a proof point to claim:  “There is no evidence of willful ‘lying’ by any Project Representative to landowners.” This technique illustrates the slippery slope gas companies like Spectra Energy navigate between their words and their deeds.  Spectra Energy’s report and the first of four commentaries are available at this link, “Pious Mouse Wash 1: http://www.spectraenergywatch.com/blog/?p=213

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/spectra-energy-retreats-on-methane-incident/   Accountability Central is part of the Governance & Accountability Institute, Inc.

In addition, this post was also published on CSRHUB, a Corporate Social Responsibility website at this link: http://www.csrhub.com/blog/2013/04/spectra-energy-flip-flops.html

In Canada, it was published by PIPELINE OBSERVER, a website of the Canadian Association of Energy and Pipeline Landowner Associations focused on property rights: http://pipelineobserver.ca/spectra-energy-flip-flops/

Legal Showdown Coming on Compulsory Integration;

Investigative Work by William Fischer;

Attorneys to File Suit if New York Government Issues Permits for Horizontal Hydraulic Fracturing

New York State’s compulsory integration law – written by the gas industry and passed with no public hearing – is fast approaching a serious legal challenge.

Under it, landowners who prefer not to sign gas leases can be forced into drilling units. Further, the law treats property owners who willingly sign shale gas drilling leases differently from landowners who are forced into drilling units.

This unequal treatment ranges from lower royalty rates, denial of a signing bonus, potentially high financial risk penalties including paying a percentage of actual well costs, and other liabilities.

If, as some expect, New York Governor Andrew Cuomo’s Department of Environmental Conservation (DEC) issues permits for horizontal hydraulic fracturing, a legal challenge will follow to have the compulsory integration law struck down as unconstitutional.

The law as written does not apply to gas-bearing shale deposits, according to William C. Fischer, described as a “forensic” investigator, by Attorney Helen Slottje.

Compulsory Integration Not Applicable to Shale

Slottje is Managing Attorney at the Community Environmental Defense Council (CEDC) in Ithaca, NY.  CEDC is a public interest law firm founded by Helen and David Slottje.  Link: http://www.cedclaw.org/

Fischer’s detailed research involves a close reading of Title 9 of Article 23 of the Environmental Conservation Law “to provide for the compulsory integration of private property.”

His assessment is available in an 11-page, sourced white paper titled, A Critical Review of the Compulsory Integration Requirement. ¹  

Among Fischer’s key points (emphasis added):

• “The Environmental Conservation Law (ECL) statute does not authorize the compulsory integration of gas bearing shale deposits.”
• “Compulsory integration of gas bearing shale deposits constitutes an unauthorized taking.”

Fischer points out that the 2005 amendment failed to update the technology definitions of New York State’s 1963 law.

As it turns out, Fischer writes:  “The 1963 provisions were written prior to the development of high volume, slick water, hydraulic fracturing … and were based on the technology of the time; i.e., vertical drilling into oil and/or gas fields and pools.”  (p. 3)

As a result, “Title 9 does not authorize the compulsory integration of gas bearing shale formations.  Bill #S5553-B seems to have left unchanged the definitions section of the 1963 version,” Fischer writes.

Attorney Slottje agrees:  “There are statutory definitions of a pool and a field.” “There are no pools in the Marcellus Shale, it is just a rock.”

Preparing Legal Challenge

Slottje told an audience in Kirkland, NY, last year that the Community Environmental Defense Council (CEDC) in Ithaca, NY, is readying a legal challenge seeking to have the compulsory integration statute declared unconstitutional and struck down.  Video of that 91-minute presentation and Q&A are available at this link: http://www.youtube.com/watch?v=W71xDr5Zz4k

In that presentation, she elaborates on the legal issues raised by Fischer:

• “Compulsory Integration – forcing people to lease … – makes no sense and has no legal support in shale formations.”
• You don’t have a pool and it is not migratory gas.  So the legal arguments that were used to make this acceptable… don’t exist in this instance.”

High-volume, slickwater hydraulic fracturing technology emerged in 1997, when Mitchell Energy developed it in the Barnett Shale of Texas.

NYS Stuck with Law It Passed

According to Fischer (emphasis added), “nothing in Title 9 makes reference to or includes anything which could be construed as a gas bearing shale formation.  And no agency of the State may promulgate rules and regulations which exceed that authorized and intended by statute.”

“Compulsory Integration has not gotten enough attention,” says Lou Allstadt, a former Mobil Oil Corporation executive with 31 years in the industry.  “I think it is vulnerable legally and politically when people understand it.”

Attorney Chris Denton, who practices oil and gas law in New York State, told me that Fischer “is at his best when he is issue spotting.  He [Fischer] highlights the apparent incomprehensibleness of oil and gas law.”

Denton notes (emphasis added) “that if the Final Order of Integration includes a grant to the driller of the right to drill horizontally beneath an unleased property that entry of the well bore into such parcel would be a trespass or a ‘taking’ under the fifth amendment to the US Constitution.  I know of no court who has ruled on this issue in New York.” 

As Attorney Helen Slottje told the audience in Kirkland, NY, “We’re focused on a court challenge [to compulsory integration].”

Slottje said the lawsuit would likely take the form of a “hybrid Article 78 declaratory judgment.”  She described this as an “expedited, specialized legal procedure in New York where you can challenge an administrative agency’s decision” (i.e., the DEC).

Legal Challenge = Article 78 Declaratory Judgment

The advantage of this approach is that it can be accomplished in a relatively short time.  As Slottje notes:  “The court just looks at the record from the administrative [DEC] decision and decides if it was legal or not.”

She elaborates:

“So our claim would be that this process, this [compulsory integration] hearing, violated people’s due process – substantive and procedural due process rights – that it’s a taking, because”

• There is physical trespass;
• There’s no compensation – that’s violative of the 5^th and 14^th amendments of the United States constitution, it is violative of the corollaries to that in the New York State constitution

“We will seek a declaration from the court that the compulsory integration statute itself is unconstitutional and needs to be struck down.”

To date, the DEC has not issued horizontal hydrofracking permits.  Launching such a lawsuit requires a current compulsory integration case and a current plaintiff (the injured party).

Cuomo’s DEC Refuses to Release Health Studies

Meanwhile, Governor Cuomo and the DEC appear to edge closer to issuing drilling permits.  This despite challenges to the process and lack of transparency surrounding Cuomo’s Public Health Review of the Supplemental Generic Environmental Impact Statement (SGEIS) for high-volume hydraulic fracturing.

As recently as February 12, DEC Commissioner Joseph Martens stated (emphasis added):  “If the DOH Public Health Review finds that the SGEIS has adequately addressed health concerns, and I adopt the SGEIS on that basis, DEC can accept and process high-volume hydraulic fracturing permit applications 10 days after issuance of the SGEIS. The regulations simply codify the program requirements.”  Link to DEC statement: http://www.dec.ny.gov/press/89195.html

But the Community Environmental Defense Council (CEDC) is challenging DEC’s refusal so far “to release the scientific reports that the proposed high volume horizontal fracking regulations are required to be premised upon.”

In a public statement, the CEDC states:  “Under New York law, the DEC must release within thirty days after being asked all scientific studies that are used as the basis for a proposed rule.”  Refer to the CEDC statement: http://www.cedclaw.org/news/2013/02/dec-shuts-the-public-out-again/

Attorneys Helen and David Slottje, of the CEDC have notified the DEC “that if it fails to respond they will bring a suit to compel production of the reports and to stop the proposed regulations from being enacted.”

Compulsory Integration’s Domino Effect

This is only the beginning of the coming problem faced by industry and government proponents of compulsory integration laws, also known as forced pooling or unitization.

In addition to challenging the industry-written law in New York State, the domino effect could extend to other states.

When the legal challenge is raised over compulsory integration in New York State, it will highlight the vulnerability of similar laws in nearly 40 other states. These laws are largely written by the energy industry; and are often punitive toward property owners forced into a drilling unit.²

Links & Resources

¹ A Critical Review of the Compulsory Integration Requirement, Title 9 of Article 23, New York State Environmental Conservation Law – A White Paper (as amended) by William C. Fischer, November 12, 2011 – pdf file:  Expanded CI White Paper by WCF 5th draft

² State Laws Can Compel Landowners to Accept Gas and Oil Drilling, by Marie C. Baca, ProPublica, May 19, 2011 – List of states with forced pooling/compulsory integration/unitization laws: http://projects.propublica.org/tables/forced-pooling

NOTE:  This article is cross-posted on the Accountability Central website at this link:   http://www.accountability-central.com/nc/single-view-default/article/compulsory-integration-legal-challenge-coming-investigative-work-by-william-fischer-attorneys/   Accountability Central is part of the Governance & Accountability Institute, Inc.

NY Farm Bureau Supports ‘Safe & Responsible’ Drilling

But Opposes Unequal Treatment by Compulsory Integration Law

While the New York Farm Bureau supports “safe and responsible development of natural gas in a manner that protects our land and water,”¹ it is challenging several aspects of New York State’s compulsory integration law.

The industry-written law was passed in 2005 with no public hearings.  It treats property owners who willingly sign shale gas drilling leases differently from landowners who are forced into drilling units by the law.

This unequal treatment ranges from lower royalty rates, denial of a signing bonus, potentially high financial risk penalties including paying a percentage of actual well costs, and other liabilities.  The 2005 law is seen by some as legally and politically vulnerable.²

Three different pieces of legislation to amend the law are supported by the Farm Bureau:³

• Require equal royalty payments to landowners forced into a drilling unit versus current law that provides more favorable treatment to property owners willing to lease.  This bill would require royalty payments “to be equal to the highest royalty in the [drilling] unit or 18.75% at the minimum.”  (Bills S. 3659 – Sponsor:  Senator Valesky; and A. 3082 – Sponsor:  Assemblywoman Lupardo)

• Boost the amount of leased acreage required to trigger compulsory integration in a potential drilling or spacing unit to 75% – up from the current 60%.  (Bill S. 7167 – Sponsor: Senator Grisanti))

• Extend the right of landowners to cancel a signed oil or gas lease from 3 days to 5 days or a full business week.  (Bills S. 750 – Sponsor:  Senator Young; and A 6211 – Sponsor:  Assemblyman Magee)

Jeff Williams is Deputy Director & Manager of Governmental Relations for the New York Farm Bureau.  He was involved in legislative/industry discussions over the 2005 law; and he is also a member of the High-Volume Hydraulic Fracturing Advisory Panel of the New York Department of Environmental Conservation (DEC).

The 18-member panel, originally announced by the DEC in 2011, comprises industry, environmental and elected officials.⁴

Williams told me that, originally, the Farm Bureau opposed the compulsory integration bill, which caused a storm with the Assembly sponsor of the bill, William Parment.  Parment (Democrat, District 150) announced his retirement in 2010.

Williams recalls much excitement in 2005 over the Trenton Black River formation – a large “play” that could potentially bring economic benefit to New York State and landowners.  Back then, high-volume (horizontal) hydraulic fracturing was not an issue as industry was doing vertical fracturing in the state.

During the 2005 legislative negotiations over the proposed law, equalizing the royalty rate between willing and forced gas leaseholders was a nonstart for industry participants, according to Williams.  In fact, the industry threatened to leave New York State.

After some amendments to the proposed bill, the Farm Bureau changed its stance to “no position,” as noted in Williams’ letter to Richard Platkin, Counsel to Governor George Pataki at that time.

Today, the New York Farm Bureau is the primary organization pushing legislation to equalize royalties and make other changes in the compulsory integration law in order to “provide protections for landowners.”

Ashur Terwilliger is President & State Director of the NY Farm Bureau’s District 4.  He is not a fan of “taking” property rights at either the federal or the state level.  As he told me, “The most important thing on my agenda is private property rights! You pay taxes and then someone comes in and steps on your rights?!”

His personal position reflects “Farm Bureau Beliefs,” as stated on the organization’s website:  “Property rights are among the human rights essential to the preservation of individual freedom.”   http://www.nyfb.org/about_nyfb/

As Deputy Director and Manager of Governmental Relations Jeff Williams said,  “We, the Farm Bureau, definitely take umbrage at the [unequal] royalty rate” in the current law.

Links & Resources

¹ New York Farm Bureau Priority Issues for 2012  http://www.nyfb.org/legislative_affairs/subpage.cfm?ID=57

² For additional background on compulsory integration, see two previous posts on the Spectra Energy Watch website:

• Eminent Domain as Compulsory Integration: Property Owners Treated Differently – Face $$$ Penalties When Forced into Drilling Unit – Link http://www.spectraenergywatch.com/blog/?p=1674

• Myth of “Free Ride” for Landowners Forced into Drilling Units; Compulsory Integration Supporters vs. Opponents – Link: http://www.spectraenergywatch.com/blog/?p=1700

³ New York Farm Bureau Bill Memos:

• Equalize Royalty Rates, S. 3659 and A. 3082 – pdf file: NYFB S 3659, A 3082
• Increase Acreage Required for Compulsory Integration, S. 7167 – pdf file: NYFB Bill Memo S 7167
• Extend Lease Cancellation Time, S. 750 and A. 6211 – pdf file: NYFB S 750, A6211

⁴ New York State Department of Environmental Conservation High-Volume Hydraulic Fracturing Advisory Panel – Names and contact info: http://www.toxicstargeting.com/MarcellusShale/dec-fracking-panel

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/ny-farm-bureau-supports-safe-responsible-drilling-but-opposes-unequal-treatment-by-compulso/   Accountability Central is part of the Governance & Accountability Institute, Inc.

Myth of “Free Ride” for Landowners Forced into Drilling Units;

Compulsory Integration Supporters vs. Opponents

New York State’s 2005 compulsory integration law was written by the oil and gas industry and passed unanimously with no public hearings, according to Attorney Chris Denton, an oil and gas lease attorney in New York.¹ 

Coincidentally in 2005, Range Resources began gas production from Renz #1, the first high-volume hydraulic fracturing (HVHF) well in the Marcellus Shale in Pennsylvania.  Shale gas extraction by HVHF had come to the northeast.

Today, experienced voices argue the pros and cons of New York’s law and I contacted several of them.

Compulsory Integration ‘Vulnerable’ or Valuable?

“Compulsory Integration has not gotten enough attention,” says Lou Allstadt, a former Mobil Oil Corporation executive with 31 years in the industry.  “I think it is vulnerable legally and politically when people understand it.”

Thomas West, Founder and Managing Partner of The West Firm in Albany, NY, “played a key role” on behalf of the gas/oil industry in writing the compulsory integration law, as the firm’s website states.  Link: http://www.westfirmlaw.com/practice-areas/oil-gas-law.cfm

Attorney West summarized its value:  “In a nutshell, New York’s spacing and compulsory integration statutory scheme is considered a conservation measure that promotes the full development of the resource and protects the correlative rights of all landowners in the unit.”

The 2005 law creates three legal options for property owners forced into a drilling unit.  For more background, see part one of this series on compulsory integration: http://www.spectraenergywatch.com/blog/?p=1674

Compulsory Integration:  No “Opt Out”

Attorney West notes (emphasis added):

1. “The three options, include the right [of the landowner] to participate by paying the pro rata share of the estimated costs of the well, including plugging in abandonment costs.
2.  “Second, an uncontrolled [property] owner can elect to be carried, which means that the well operator pays the estimated costs on behalf of the landowner and collects a 200% risk penalty before the landowner obtains rights of participation, but the landowner may be eligible for a graduated royalty during the risk penalty payout period.
3. “Third, the landowner can be integrated as a royalty owner at the lowest royalty in the unit, but not less than 1/8^th.”

Here is where the discussion gets emotional.  As Attorney West told me (emphasis added):

“Since the New York law is focused on maximizing the development of the resource, it does not allow people to opt out, which only serves to hurt their neighbors and preclude the orderly drainage of the resource.”

Industry veteran Andy Leahy agrees and speaks of property owners who would prefer not to lease and so are forced into a drilling unit as “hard-nosed folks” who get a “free ride” without “taking any risk.”

Leahy has been a contract oil and gas land title searcher for about a dozen years.  His resume includes work for Honor Resources Company and Mason Dixon Energy, Inc.  His website is NY Shale Gas Now!: http://nyshalegasnow.blogspot.com/

Equitable vs. Punitive Treatment

Leahy explains the compulsory integration law was passed at a time when there was excitement about the potential harvest of gas from the Trenton-Black River formation, via “conventional-but-high-tech-seismic” exploration techniques.

“The dry hole percentage there was significant,” Leahy says, “but not something industry often cares to publicize.”  

“So NY’s compulsory integration equity considerations (circa 2005-2006) were deeply affected by the question of how do you pay for all these dry holes, and how do you set it up in such a way that development is encouraged, and not thwarted by the law,” Leahy says.

Equitable:  Surface & Environmental Impact

Closer to Mr. Leahy’s idea of “equitable and non-punitive” treatment under compulsory integration is a landowner “Getting 12.5% to 20% of the proceeds out (royalty), plus bonus, etc. — without making much direct effort, but while accepting the chance of direct surface or nearby environmental impact ….”

He also notes that property owners who are compelled to be integrated, do “get the benefit of no-surface impact, which is very important for some people.”

In other words, landowners who are compelled to be integrated will not have drilling operations on the surface of their property.

“Myth of the Free Ride”

Attorney Chris Denton has represented property owners in more than 40 compulsory integration actions and says, “The ‘free rider’ charge always particularly galled me.”

As he notes in a paper he wrote (emphasis added):

“The entire risk penalty concept turns reality on its head.  It is the landowner who has the rights to the oil and gas, it is the landowner who pays the taxes all those years, it is the landowner who has the strict liability under law for pollution on her property regardless of who causes the spill.” ²

“The risk of which the oil and gas company speaks is the risk of a ‘dry hole’,” Denton says.  “In other words, the loss of its well drilling costs. With today’s 3D seismic for on shore drilling, that risk is minimal.”

“In business, exclusivity and monopoly franchises are valued at a premium,” according to Denton.   “Yet when DEC awards a permit which results in a compulsory integration order, the single permit drilling monopoly granted to the driller is not valued and paid to the landowner who no longer has the right to drill, no longer has the right to develop, and no longer has the right to produce his gas.  Instead the landowner is given back 12.5% of his gas while the company with the drilling monopoly receives 87.5% of the gas.  This makes no sense at any level.”

“… the real ‘free ride’ is by the driller,” Denton says.  “In Compulsory Integration the driller does not have to pay fair market rates for your gas or provide you with negotiated environmental protections.”

Note:  More to come in the next post as we unwind compulsory integration.

Links & Resources

¹ Compulsory Integration in a Changing Energy World – Paper written by Attorney Chris Denton, oil and gas lease attorney, Elmira, New York.  This is published as a pdf file on the Tioga Gas Lease website (see p. 4):  http://www.tiogagaslease.org/images/Compulsory_Integration_2012.pdf

² Compulsory Integration and Eminent Domain – Paper written by Attorney Chris Denton, oil and gas lease attorney, Elmira, New York.  See especially pp. 4-5, following section 5, “What about the claim of a free ride and the risk taken by the driller?”  Pdf file:  Compulsory Integration and Eminent Domain

NOTE:  This article is cross-posted on The Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/myth-of-free-ride-for-landowners-forced-into-drilling-units-compulsory-integration-supporters/  Accountability Central is part of the Governance & Accountability Institute

Eminent Domain as Compulsory Integration:

Property Owners Treated Differently –

Face $$$ Penalties When Forced into Drilling Unit 

Law Written By/For Gas Industry 

The shale gas/oil “gold rush” in the U.S. brings with it the power to take surface and/or subsurface property rights from private citizens – by several means.

Today, the United States is effectively approaching the status of many countries in Europe where the nation owns the mineral rights, not private property owners.

• So far, in the U.S., nearly 40 states have compulsory integration (or forced pooling or unitization) laws on the books.¹  These laws are largely written by the energy industry; and they are often punitive toward property owners who are forced into a drilling unit.

In New York State, for example, property owners who willingly sign shale gas drilling leases are treated differently from property owners who prefer not to lease, but are forced by state law into a drilling unit.

This different treatment ranges from a 300% risk penalty to the denial of a signing bonus to being assigned a lower royalty rate.  All under a law written by the energy industry.

‘Landowner Options’ – State Law

The first sense of disparate treatment can be found in the “Landowner Option Guide” on the Department of Environmental Conservation’s (DEC) website.  It warns property owners in the fourth paragraph (emphasis added):

    “Each option presents different risks and potential rewards. The option you select may subject you to certain costs and obligations, and there is no guarantee that a well will make money. You should carefully consider all the implications of your decision.”  Link:  http://www.dec.ny.gov/energy/1590.html

For example, if you elect (are forced?) to be integrated as a “participating or non-participating owner,” DEC states, “You will be held liable for your share of the additional costs,” according to the DEC.

What additional costs?  According to the DEC:

• Actual well costs – your share of “The actual cost to drill or plug the well….”

• Completion and operating costs – “If the well is successful, it will cost money to complete and operate ….”

• Gathering line costs – “If the well is a producer, the well operator will provide you with the estimated costs to install a gathering line to bring the gas to market.”

The potential dollar penalty of compulsory integration to a private property owner is staggering, according to Christopher Denton, an attorney who practices oil and gas law in New York State.

$1-6 Million ‘Risk/Benefit’ Penalty

By Denton’s published reckoning, a landowner who “elects” (?) to become an integrated participating owner might have 30 days after the compulsory integration hearing notice to raise an estimated one-to-six million dollars (or more), depending on his percentage in the unit, the well and the formation to which it will be drilled.⁵

As Denton’s analysis suggests, the various punitive wedges likely push a landowner into the “Integrated Royalty Owner” category.

Ohio offers a preview of what faces landowners in New York and other Northeast states.  As The Columbus Dispatch reports:

“When a Chesapeake Energy land man approached [Landowner Steve Neeley] months ago with an offer to lease the Utica shale mineral rights beneath his meticulously landscaped 9.5-acre property in eastern Ohio, Neeley declined. That’s when, Neeley says, the land man told him, ‘We’ll just take it.’ 

“Neeley and 23 of his neighbors are the first group of Ohio landowners forced to take part in Utica-shale drilling under a seldom-used state law.” ²

Controversy Over Forced Integration

Even Pennsylvania Governor Tom Corbett, otherwise a huge supporter of the energy industry, has consistently rejected forced pooling (aka, compulsory integration, unitization) and calls it, “private eminent domain.” ³

In addition to compulsory integration, drill sites bring gathering lines, transmission pipelines, compressor stations and huge underground storage reservoirs for natural gas.  All of this requires more “taking” of property via eminent domain plus more environmental & social risks.

“Involuntary compulsory integration represents the most controversial method drilling companies use to access gas,” writes Attorney Elisabeth N. Radow in the New York State Bar Association Journal. ⁴

In New York State, the 2005 compulsory integration law was passed unanimously in both the Assembly and Senate.  Is it possible not a single voice was raised on behalf of property rights?

Energy Industry Writes Law

Major industry players in drafting the law included the Independent Oil & Gas Association (IOGA) of New York, Chesapeake Energy and Thomas S. West, Founder of The West Firm in Albany, according to Attorney Christopher Denton, who estimated potential costs to landowners forced to be integrated.

In response to my query, Attorney Mike Fallon, speaking on behalf of IOGA, said,  “I cannot confirm that … I did not represent IOGA at the time.”  He acknowledged that industry often writes its own laws, “But I don’t believe the initial proposal came from IOGA.”

A prime mover on behalf of the energy industry is Thomas S. West, Founder and Managing Partner of The West Firm, a law firm based in Albany, NY.  The firm’s website states:

“Tom West is well known as a leading authority on New York’s oil and gas well siting program.  He played a key role in the 2005 amendments of Environmental Conservation Law Article 23 that overhauled New York’s compulsory integration program ….”    Link: http://www.westfirmlaw.com/practice-areas/oil-gas-law.cfm

Anti-Property Rights Emotion

In response to my query on compulsory integration, Mr. West replied (emphasis added):

“Since the New York law is focused on maximizing the development of the resource, it does not allow people to opt out, which only serves to hurt their neighbors and preclude the orderly drainage of the resource.”

So if landowners are allowed to opt out of drilling, it will “hurt their neighbors.”

This is a theme sounded repeatedly by supporters of compulsory integration who use language that refers to property owners who would prefer not to lease as “hard-nosed folks” who get a “free ride” without “taking any risk.”

No mention is made of the fact that an asset that doesn’t belong to the gas industry or the government is taken from citizens who don’t want to lease.

On top of this insult comes punitive treatment justified under a law written by the industry for the industry – after the industry gets what it wants, the mineral rights. 

Energy/Government Entitlement

Those of us who speak from experience (including this former gas leaseholder) know that such “taking” of private property rights amounts to a government entitlement for energy companies.

The industry cannot take property rights without government support.

It is not stretching a point to say that eminent domain puts landowners in a face-off with the equivalent of a cartel comprised of energy companies and government.

The power of eminent domain in all its variations allows corporations – backed by government – to control pricing and competition (i.e., “just compensation” and what constitutes “public interest”).  By definition, that is a cartel.

As we see in New York, that cartel has the power to penalize property owners, even while taking what it wants.

More To Come

Our next post will take a closer look at the energy industry’s entitlement to private property rights.  We will seek the perspective of supporters and opponents of compulsory integration, including legislators, individuals who are looking closely at the law, and institutions that support “responsible drilling” but object to the disparate treatment of landowners.

Links & Resources

 ¹ State Laws Can Compel Landowners to Accept Gas and Oil Drilling, by Marie C. Baca, ProPublica, May 19, 2011 – List of states with forced pooling/compulsory integration/unitization laws: http://projects.propublica.org/tables/forced-pooling

² No to ‘fracking’ doesn’t mean no – Landowner refusal can’t stop drilling,  by Spencer Hunt, The Columbus Dispatch, July 29, 2012 – http://www.dispatch.com/content/stories/local/2012/07/29/no-to-fracking-doesnt-mean-no.html#comment

³ Corbett takes stand against forced pooling – by Don Hopey, Pittsburgh Post-Gazette, March 30, 2012: http://www.post-gazette.com/stories/local/marcellusshale/corbett-takes-stand-against-forced-pooling-295198/

⁴ Homeowners and Gas Drilling Leases:  Boon or Bust?  By Elisabeth N. Radow, New York State Bar Association Journal, November/December 2011 – Pdf file:  NYSBA Journal nov-dec2011 lead article with reprint info

⁵ Compulsory Integration in a Changing Energy World – Energy in Depth – Northeast Marcellus Initiative, August 20, 2012, by Guest Blogger Attorney Chris Denton, Oil and gas lease attorney, Elmira, New York  http://eidmarcellus.org/marcellus-shale/compulsory-integration-in-a-changing-energy-world/12157/

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/eminent-domain-as-compulsory-integration-property-owners-treated-differently-face-penalties/  Accountability Central is part of the Governance & Accountability Institute, Inc.

In Search of Transparency in the Energy Industry;

Industry Says Public is “Illiterate,” “Insurgency”

Is Spectra Energy a Benchmark?

When the energy industry touts its Corporate Social Responsibility (CSR), an acquaintance says this really translates to Cynical Social Responsibility as a more accurate reflection of industry behavior.

For example, ExxonMobil CEO Rex Tillerson calls the public “illiterate.”¹  Range Resources and Anadarko Petroleum managers are on record recommending the use of military psyops personnel to deal with “an insurgency,” referring to landowners with the temerity – and perhaps the ‘illiteracy’ – to challenge industry operations.²

On the other side of the industry’s mouth, Spectra Energy CEO Greg Ebel talks of the importance of transparency in order to win public support.  “We need to maintain that [transparency] because the public’s criticism of us has been pretty significant these days,” Ebel told an energy conference, according to the Houston Chronicle.³

‘Pretty Significant’ Public Criticism

Yet Ebel and Spectra Energy are among many energy companies that decline to respond to questions from stakeholders, including property owners who are impacted by the company’s operations.  An energy reporter recently contacted this writer because Spectra Energy was not forthcoming in response to his questions.

Such behavior is embedded in energy industry culture.

The Goose Creek school district in Baytown, Texas, is about 25 miles from Spectra Energy’s Houston headquarters.  The district took the highly unusual action of shutting down an elementary school and a second building due to fears regarding a “leak or rupture” from nearby “aging pipeline corridors.”

The school board summarized its decision as follows (emphasis added):

“The closing of the school and West Town complex follows a risk-analysis study of the two sites situated between two aging pipeline corridors.  The risk-analysis study commissioned by the district concluded that should an incident – such as a leak or rupture – occur to a pipeline near the school or complex, there is a potential that students and/or staff could be injured or worse.“ ⁴

The Goose Creek school district’s risk-analysis study mentioned Spectra Energy’s 55-year-old, 30-inch pipeline by name – the only one to be specifically identified.⁴

When I contacted the company to ask what additional maintenance it might take with its aging gas pipeline; whether it believed nearby homeowners were at risk; and whether Spectra Energy cooperated with the risk-analysis study – the company declined to answer saying, “it would no longer be appropriate to respond to your correspondence.” ⁴   

This is a company whose execs publicly state:  “The safety and reliability of our pipelines is ‘mission critical’ for Spectra Energy.  Safety is our franchise.  It’s what we ‘do.’”⁵

But when the moment of truth comes, it is “no longer appropriate to respond.”

The two buildings were shut down and abandoned at the end of the school year in 2009.  In 2011, a “For Sale” sign went up.  Recently, I contacted the school district to get an update.

Pete Côté, Executive Director of Support Services and Special Projects for the Goose Creek CISD (Consolidated Independent School District), replied.

As it turns out, the second building (West Town Center) is still for sale at an appraised value of $3.6 million; and on August 13, the school board approved a contract for the demolition of the elementary school, expected to be completed by October of this year.

Mr. Côté notes (emphasis added):  “As to the status of the aging pipelines running through the property, since we do not own or operate these pipelines we have little leverage to address this issue.  We’ve asked the Rail Road Commission to look at the issue and have been told the lines are currently in compliance w/ their requirements.”

Exposed bypass valve which is part of an "aging pipeline corridor" next to abandoned elementary school and second building in Goose Creek school district.

Meanwhile, Spectra Energy states on its website (emphasis added):

“We recognize that our stakeholders want to understand how we make decisions, manage our operations and hold ourselves accountable to our commitments and society’s expectations.”   Link:  http://www.spectraenergy.com/Sustainability/Economic/Acting-with-Integrity/

And the company does that by not replying to questions about how it manages operations such as aging pipelines that lead a school district to shut down and abandon two buildings?

It gets worse.  Spectra Energy goes so far as to acknowledge the problem it and the industry has with public trust as one of four key “Challenges” it faces (emphasis added):

• “Restoring public trust and rebuilding public confidence in natural gas pipeline infrastructure and pipeline safety awareness.”  Spectra Energy Website Link:  http://www.spectraenergy.com/Sustainability/Economic/

CEO Ebel and the industry ponder why energy industry credibility is declining as it shuffles the cards to replace principles with platitudes.

Spectra Energy’s ‘Corporate Shill’

For example, Ebel, a former Canadian government official, became CEO in 2009.⁶  Spectra Energy’s Wikipedia site reveals a company that cleanses and polishes its environmental record to the degree that Wiki editors criticized the “corporate shill” who continued to delete any effort at a fact-based, balanced report on the company’s performance record – failures as well as success.⁷

The “corporate shill” referred to by name is Jerry Hereden, a “Digital Web Specialist at Spectra Energy.”⁸

As the Wiki Revision History states:  “(Undid revision 381312289 by Jdhereden (talk) because the well-sourced, well written environmental section was deleted by a corporate shill.)”⁹

Among his tasks is to shrink the public record on the company’s adverse environmental and community impacts and inflate the image of 48-year-old CEO Ebel.

CEO Ego – Size Matters

The result is amusing.  Spectra Energy’s Wiki website runs about 1,300 words.  Nearly half that is devoted to Ebel’s image rather than company operations.  We learn about Ebel’s “Career,” “Leadership” and, especially, his “Thought Leadership” which describes his many media appearances.

Is this another celebrity CEO in aspiration?

Ironically, the section on CEO Ebel dwarfs his company’s section on its Environmental Record – which could be twice as long if it included a balanced performance record which we’d be happy to supply.  Anything to help the corporate shills.

Since we mentioned ExxonMobil’s CEO Rex Tillerson at the beginning of this, perhaps we should compare its Wikipedia site which runs two sentences about Tillerson.  If size matters to Mr. Ebel – the size of the executive bio emphasizes the wrong values unless the company is committed to Cynical Social Responsibility.

Motley Fool on Spectra Energy

On the subject of value, The Motley Fool (TMF) ran a piece on “insider ownership” earlier this year, written by Contributor Dan Newman.  It reviews Spectra Energy and four other companies.

Insider ownership refers to how much company management is “personally invested” in the company.  Newman’s chart shows that Spectra Energy execs own far less than one percent of company stock.

According to TMF Contributor Newman (emphasis added):

“All of Spectra’s directors and executives own about 0.2% of shares (http://www.dailyfinance.com/quote/nyse/spectra-energy-corp/s   ….  

“CEO Ebel owns 127k shares, and is required to own 200k within 5 years of becoming CEO (I think that’ll be 2013). That makes his position worth about $4m, whereas he got paid $6.8m in 2010. Not the best ratio, I agree.”

Motley Fool link:  http://www.fool.com/investing/general/2012/01/24/drilling-down-on-this-natural-gas-player.aspx

‘All Hat & No Cattle’

To borrow a western phrase, Cynical Social Responsibility is an illustration of “all hat and no cattle” – big talk, no substance.   Energy industry execs talk and talk about the decline in public trust.  But they do not do what they say they will do in terms of their much touted principles of transparency, accountability and integrity.

Instead, they trade principles for platitudes.  The energy industry created its own decline in public trust.  Now they will live with the consequences – from investors, communities, property owners.  Not even ExxonMobil has enough money to buy trust.  And yes, Spectra Energy is a benchmark – of what not to do.

Links & Resources

¹ Transcript of CEO Rex Tillerson’s Speech to the Council on Foreign Relations – “The New North American Energy Paradigm,” June 27, 2012: http://www.cfr.org/united-states/new-north-american-energy-paradigm-reshaping-future/p28630

² “Oil Executive:  Military-Style ‘Psy Ops’ Experience Applied,” November 8, 2011, CNBC by Emon Javers – http://www.cnbc.com/id/45208498

The CNBC coverage includes audio links for the comments made by Mr. Pitzarella of Range Resources and Mr. Carmichael of Anadarko Petroleum.

³ “Energy leaders urge transparency to win public support” by Zain Shauk and Simone Sebastian, March 8, 2012, Houston Chronicle at this link: http://www.chron.com/business/article/Energy-leaders-urge-transparency-to-win-public-3390421.php

⁴ Pipeline Fears Shut School – Spectra Energy Watch, March 2, 2011 – In addition to background information on the shutdown and abandonment of two buildings by the Goose Creek school district, the risk-analysis study is available as a downloadable pdf file at this link: http://www.spectraenergywatch.com/blog/?p=1089

⁵ Spectra Energy Responds to Natural Gas Pipeline Concerns – Group VP Bill Yardley’s statement in The Jersey City Independent at this link: http://www.jerseycityindependent.com/2010/08/27/the-mailbag-spectra-responds-to-natural-gas-pipeline-concerns/

⁶ Spectra Energy CEO Ebel’s biography from the corporate website – pdf file:  More_on_Greg

⁷ Spectra Energy Wikipedia – http://en.wikipedia.org/wiki/Spectra_Energy

⁸ Jerry Hereden, Digital Web Specialist at Spectra Energy – public profile at LinkedIn: http://www.linkedin.com/in/jerryhereden

⁹ Spectra Energy:  Revision history – Wikipedia – See note dated Sept. 6, 2010, which reads:  “(Undid revision 381312289 by Jdhereden (talk) because the well-sourced, well written environmental section was deleted by a corporate shill.)”  Link: http://en.wikipedia.org/w/index.php?title=Spectra_Energy&action=history

NOTE:  This article is cross-posted on the Accountability Central website at this link:  http://www.accountability-central.com/voices-featured-commentators-and-bloggers/mike-benard-columns/   Accountability Central is part of the Governance & Accountability Institute, Inc.

Cuomo Legacy Comes Full Circle in NY State

From Father’s Nuclear Dump to Son’s Hydraulic Fracturing;

 

Meanwhile Industry Documents Big Risks with Drilling:

Well Integrity “A Global Challenge,” Says Industry

Is the Cuomo legacy coming full circle – like father, like son?

Democrat Governor Andrew Cuomo suggests that the “southern tier” of New York State, along the border of Pennsylvania, is a good place to initiate high-volume hydraulic fracturing.¹

Twenty-three years ago, Governor Mario Cuomo wanted to put a nuclear dump in the southern tier, specifically Allegany County.²

Perhaps this bit of vintage citizen verse is coming back to taunt (or haunt) the Cuomo legacy.  (See photo.)

I’ll Take Allegany County

Its Roads So Bumpy

Let Cuomo Keep

His Nuclear Dumpy

Vintage verse marking Mario Cuomo's plans for a nuclear dump.

The Cuomo referred to is Mario Cuomo who was planning to site a nuclear dump in Allegany County in the 1989-1990 time frame.  That was then, this is now.

The irony is that Andrew Cuomo could be the recipient of similar poetry (see repurposed photo):

I love my home in Allegany

And I’ll live here all my life

Cause who would buy this house

Next to Cuomo’s Fracking Site?

Will Andrew Cuomo bring the family legacy full circle? (Repurposed photo.)

Depending on his decision, he will own this hydraulic fracturing legacy; and even those who would otherwise support him may not in the next election.

In public meetings and on websites, self declared life-long Democrats say that if Governor Andrew Cuomo persists in opening the state to high-volume hydraulic fracturing, they will follow the “ABC” voting practice – Anybody But Cuomo.

Scare tactics?  Perhaps not, based on the industry’s own data.  Would it not be fact based, as well as useful, to understand the failure rates over time for gas and oil wells? 

Cuomo 2^nd Term = 20% Oil/Gas Well Leaks?

The probability of environmental and community risk is not trivial, according to industry itself.  In addition, the risk to well integrity is not limited to the “fracturing” segment of the process.

According to Rich Liroff, PhD., executive director of the Investor Environmental Health Network:

“Such risks are associated with the broad life cycle of shale operations…. They are not limited to concern about hydraulic fracturing in its narrowest, technical sense.”³

Regarding the Cuomo legacy, Josh Fox, producer of the movie Gasland, predicts (emphasis added):⁴

“So if New York State starts drilling tomorrow, and Andrew Cuomo is elected for a second term – by the end of his second term as governor, it’s safe to say that 20% or more of oil and gas wells installed in his first term will be leaking.” 

Energy Industry Documents Well Failures

Proponents of drilling may scoff, but Fox draws on the energy industry’s own documentation including technical papers, and presentations from companies like Schlumberger, Southwestern Energy, Archer and others.

These industry sources are highlighted in his 18-minute video on potential drilling in New York State titled The Sky Is Pink.  Link: http://vimeo.com/44367635

In broad brush strokes, industry sources suggest that the first year of drilling sees well failure rates of 6-7 percent.  Failures rise after that; and failure rates can climb to 50% in just 15 years.

The industry sources are illuminating because industry does not mince words about problems with well failures – usually discussed under the umbrella of “well integrity.”  We have written previously about some of these industry pronouncements.⁵

Following are highlights from three industry sources.  All three can be reviewed in their entirety by going to footnotes 5, 6, 7 under Links & Resources below.

Schlumberger Warns on Cement Failure

For example, Schlumberger (NYSE – SLB), a world leader in the oil and gas industry, warns: “Despite recent advances in the cementing of oil and gas wells, many of today’s wells are at risk. … The environmental impact of contaminating a single fresh water aquifer is extremely serious.”

This warning is from the introduction to Schlumberger’s book, Well Cementing (Second Edition, 2006) by Eric B. Nelson and others.

In Oilfield Review (Autumn 2003), a 15-page Schlumberger article titled, From Mud to Cement – Building Gas Wells, states:  “Even a flawless primary cement job can be damaged by rig operations or well activities occurring after the cement has set.”⁵

Uncontrolled gas migration can contaminate surface and ground water; it is a well-known problem in the industry.  As the article notes (p. 63):

“Since the earliest gas wells, uncontrolled migration of hydrocarbons to the surface has challenged the oil and gas industry. Gas migration, also called annular flow, can lead to sustained casing pressure (SCP), sometimes called sustained annular pressure (SAP). … Annular flow and SCP are significant problems affecting wells in many hydrocarbon-producing regions of the world.”

Schlumberger lists four categories of likely causes of uncontrolled gas migration in a well (p. 64):

• Tubing and casing leaks
• Poor mud displacement
• Improper cement-slurry design
• Damage to primary cement after setting

The Schlumberger documents show a graph of U.S. Minerals Management Service data from 22,000 underwater wells in the Gulf of Mexico that indicates cement failures rise with the age of the well.  (See graph in this article.)

After 12 years about 40 percent of wells have cement failure. After 30 years, about 60 percent of wells have cement failure.

SCHLUMBERGER technical paper uses graph from U.S. Minerals Management to indicate that cement failures rise with the age of the well.

Well Integrity – “A Global Challenge”

Another industry source is Archer (OSE: Archer) – The Well Company – “a global oilfield service company that specializes in drilling services.”  This giant characterizes well integrity as “a global challenge.”  (See illustration in this article.)

ARCHER -- THE WELL COMPANY: Well integrity is "a global challenge." Shows % of wells with "integrity" issues.

The “global challenge” of well integrity is outlined in an Archer presentation titled, “Better Well Integrity” delivered by Ken Feather, VP Marketing & Sales, Well Services, in March 2011.  It indicates the percentage of wells with “integrity” issues:⁶

• 45% of wells in the Gulf of Mexico (or >6,000)
• 34% of wells in the North Sea/UK (or 1,600)
• 18% of wells in the North Sea/Norway (or 482) [Slide 5 in presentation.]

In terms of “failures affecting well integrity & performance,” Archer further suggests that 20% of catastrophic well failures are due to loss of well bore integrity.  [Slide 6 in presentation.]

Southwestern Energy – What Can Go Wrong

Southwestern Energy’s (NYSE: SWN) James Bolander, VP of Health, Safety & Environment, delivered a presentation in Washington, DC, titled “Assessment Methods for Well Integrity during the Hydraulic Fracturing Cycle.” ⁷

In it, the company illustrates what can go wrong such as cement channeling, or a leak through the well casing.  [See illustration in this article.]

SOUTHWESTERN ENERGY presentation illustrates what can go wrong such as a leak through the well casing.

Will regulators, government officials, and energy industry advocates be “fact based and non-emotional” about the probability of cement and well integrity failure immediately and over time – as documented by the industry?

Neither Pennsylvania nor New York track well failure rates, so how will they understand or deal with it?

And what of the thousands of abandoned or unreported wells in New York State alone?

4,000 Abandoned/Unreported Wells in New York

“There are approximately 4,000 abandoned or unreported wells on DEC’s priority plugging list,” according to Emily DeSantis, Assistant Director of Public Information for DEC.  “There are approximately 35,000 wells for which DEC has no records.”

As DeSantis told this writer in October of last year, “the proposed dSGEIS requires drilling companies to survey the land generally within one mile of a proposed well location.  If an unplugged deep well is found, DEC would require the operator to properly plug and abandon it before any high-volume fracturing begins.”

The challenge, as we have noted before, is that track records always trump promises.  If New York State cannot clean up old drilling messes, how will it prevent – let alone clean up – new drilling messes?  Especially if it does not even monitor and track well failure rates.

Is this the Cuomo legacy?

Links & Resources

¹ Cuomo Proposal Would Restrict Gas Drilling to a Struggling Area – The New York Times, June 13, 2012, by Danny Hakim: http://www.nytimes.com/2012/06/14/nyregion/hydrofracking-under-cuomo-plan-would-be-restricted-to-a-few-counties.html?_r=2

² Allegany County resists nuclear dumping, 1989-1990 – summary of May 1989 to April 1990 at Global Nonviolent Action Database (Research notes listed at end of article): http://nvdatabase.swarthmore.edu/content/allegany-county-resists-nuclear-dumping-1989-1990

• See also An Interview With Environmental Activist Richard “Spike” Jones – The Houghton Star, March 26, 2012, by Bekah Hall:   http://www.houghtonstar.com/news/an-interview-with-environmental-activist-richard-spike-jones-1.2828364?pagereq=1#.T-Ip2q4mIw8

³ Investors Want MEASURED Transparency – Spectra Energy Watch: http://www.spectraenergywatch.com/blog/?p=1614

⁴ New Anti-Fracking Film by Gasland’s Josh Fox Targets Cuomo: ‘Governor, What Color Will the Sky Be Over New York?’ – Rolling Stone, by Jeff Goodell, June 20, 2012  http://www.rollingstone.com/politics/blogs/national-affairs/new-anti-fracking-film-by-gaslands-josh-fox-targets-cuomo-governor-what-color-will-the-sky-be-over-new-york-20120620#ixzz1yMR5yJ6G

⁵ From Mud to Cement – Building Gas Wells, Schlumberger, by Claudio Brufatto and others, Oilfield Review, Autumn 2003, pp. 62-76 – http://www.slb.com/~/media/Files/resources/oilfield_review/ors03/aut03/p62_76.ashx    Pdf file:  From-Mud-to-Cement-article

• See also Does Cement Crack? Part 1 – Spectra Energy Watch: http://www.spectraenergywatch.com/blog/?p=1393

⁶ ARCHER – THE WELL COMPANY presentation: “Better Well Integrity” delivered by Ken Feather, VP Marketing & Sales, Well Services, in March 2011 – pdf file:   ARCHER well_integrity_failure_presentation

⁷ SOUTHWESTERN ENERGY presentation: “Assessment Methods for Well Integrity during the Hydraulic Fracturing Cycle” by James Bolander, VP of Health, Safety & Environment, in Washington, DC, March 2011 – Pdf file:  SWN assessmentmethodsforwellintegrityduringthehfcycle

NOTE:  This article is cross-posted on the Accountability Central website at this link:  http://www.accountability-central.com/nc/single-view-default/article/cuomo-legacy-comes-full-circle-in-ny-state/  Accountability Central is part of the Governance & Accountability Institute, Inc.

Investors Bring $1 Trillion of Pressure on Hydraulic Fracturing Industry;

Demand Disclosure & Commitment to Measurable Goals;

Meanwhile State Lawmakers ‘Gag’ Physicians & Restrict Industry Lawsuits;

Isn’t this Industry that ‘Discloses’ Frac Fluid?

Who Didn’t Get the ‘Transparency’ Memo

States like Pennsylvania and Ohio are swimming against the tide of transparency and disclosure involving high-volume hydraulic fracturing companies.  And it is a one trillion dollar tide.

Lawmakers in those states are advancing legislation to “gag” physicians and limit citizens’ ability to sue fracking companies over chemical disclosure.¹

In contrast, a group of heavyweight investors want more disclosure.

A coalition of 55 large investors – with nearly one trillion dollars in assets – is telling the shale gas fracking industry it is time to “clean up,” disclose and commit to 12 measurable “Best Practices.”

Investor Influence

These are folks who invest money in energy companies; and the “growing coalition” includes investors in the U.S., Europe and Australia, according to the group’s announcement last month.²

About 10.6% of the market cap of the S&P 500 stock index is invested in the energy sector.  In developed markets outside of the U.S. and Canada, the portion is 8.4%.  This is specifically the MSCI EAFE index (Morgan Stanley Capital International Europe, Australasia, and Far East).

“Investors may be overweighted or underweighted to the index depending on their views of the prospects for the energy sector,” said Steven Heim, managing director and director of ESG Research and Shareholder Engagement, Boston Common Asset Management.

Hidden Risks to Energy Stocks

Richard Liroff, PhD., executive director of the Investor Environmental Health Network, summarized the issue in his opening remarks at the May 16 press conference (emphasis added):

 “Energy companies need to do a better job of disclosing environmental and social risks associated with extracting gas and oil from shale formations and their policies and procedures for reducing or eliminating these risks.

 “Such risks are associated with the broad life cycle of shale operations including, for example, the transporting and storing water, waste and chemicals.  They are not limited to concern about hydraulic fracturing in its narrowest, technical sense.”

Liroff was one of three investor speakers at the 45-minute press conference, which is available for replay at this link: http://www.hastingsgroupmedia.com/BCIEHNICCR/051612FrackingGuide.mp3

In response to a question from Platts, an industry publication, Liroff noted during the press conference that, “there might be hidden risks to their [energy industry] stocks from management practices that don’t specifically address environmental and social risks.”

The 12 Best Practices Guidelines are contained in a 36-page document titled, “Extracting the Facts: An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations.”  The 12 reportable goals include:

• Manage risks transparently and at Board [of Directors] level:  Ensure environmental, health, safety, and social risks are core elements of corporate risk management strategy.
• Assure well integrity:  Achieve zero incidence for accidental leaks of hazardous gases and fluids from well sites.
• Reduce and disclose all toxic chemicals:  Comprehensively disclose and virtually eliminate toxic chemicals used in fracturing operations.

A pdf file of the full document can be downloaded at this link: http://www.iehn.org/documents/frackguidance.pdf

Liroff told this writer, “This is all about measured transparency.”

Risk of Public Opposition

This is echoed by international groups such as the International Energy Agency (IEA), comprised of members from 28 countries including in Europe, Asia and the U.S.  The IEA warned last month (emphasis added):

“But if the social and environmental impacts are not addressed properly, there is a very real possibility that public opposition to drilling for shale gas and other types of unconventional gas will halt the unconventional gas revolution in its tracks.”³

IEA stresses the importance of “full transparency, measuring and monitoring of environmental impacts and engagement with local communities … and measures to prevent any leaks from wells into nearby aquifers….”

The energy industry lobbies and spends heavily with million-dollar checks to prevent disclosure and restrict the public right-to-know.  Meanwhile many companies tout that they “voluntarily disclose hydraulic fracturing fluid contents” (e.g., per Range Resources website).  What the industry does not admit is that this is not FULL disclosure.

Industry and government need to recognize that they are bucking a heavy headwind.  The ‘good ‘ol days’ are over and are not coming back.

Investors and an engaged public will not go away.

Links & Resources

¹ Pennsylvania Act 13 of 2012 was signed into law by Governor Tom Corbett in February 2012.  Among its provisions is what is referred to as the Doctors Gag Rule which requires doctors to sign a confidentiality agreement and “provide a written statement of need” should they require specific information on the chemicals used in hydraulic fracturing.

Despite signing the bill into law, Governor Corbett told WHYY radio in Philadelphia that, “I’m not sure how that got put in there.”  Link: http://stateimpact.npr.org/pennsylvania/2012/05/16/governor-corbett-says-doctors-concerns-over-act-13-may-be-moot/

Ironically, the shale gas industry touts its public disclosure of fracking chemicals – usually on the industry friendly website FracFocus.org.  As Range Resources proudly says on its website:  “In 2010, Range was the first company to voluntarily disclose hydraulic fracturing fluid contents on a per well basis. It was our goal at that time to set a national model.”  This is not FULL disclosure, however, which the industry does not acknowledge – why not?

Link: http://www.rangeresources.com/getdoc/fecf2d47-a7e9-4b8e-b80d-395fc52f98ea/Commitment-to-the-Environment,-Safety,-Health—Lo.aspx

Act 13 (formerly HB 1950) – See section 3222.1; pp 98-99 on “Hydraulic fracturing chemical disclosure requirements”  http://www.legis.state.pa.us/CFDOCS/Legis/PN/Public/btCheck.cfm?txtType=PDF&sessYr=2011&sessInd=0&billBody=H&billTyp=B&billNbr=1950&pn=3048

Excerpt from Act 13 (emphasis added): (10)  “A vendor, service company or operator shall identify the specific identity and amount of any chemicals claimed to be a trade secret or confidential proprietary information to any health professional who requests the information in writing if the health professional executes a confidentiality agreement and provides a written statement of need for the information indicating all of the following:

(i)  The information is needed for the purpose of diagnosis or treatment of an individual.

(ii)  The individual being diagnosed or treated may have been exposed to a hazardous chemical.

(iii)  Knowledge of information will assist in the diagnosis or treatment of an individual.”

“(11)  If a health professional determines that a medical emergency exists and the specific identity and amount of any chemicals claimed to be a trade secret or confidential proprietary information are necessary for emergency treatment, the vendor, service provider or operator shall immediately disclose the information to the health professional upon a verbal acknowledgment by the health professional that the information may not be used for purposes other than the health needs asserted and that the health professional shall maintain the information as confidential. The vendor, service provider or operator may request, and the health professional shall provide upon request, a written statement of need and a confidentiality agreement from the health professional as soon as circumstances permit, in conformance with regulations promulgated under this chapter.”

• See also commentary on Act 13 at the Marcellus-Shale.US website: http://www.marcellus-shale.us/Act13-of-2012_HB1950.htm

¹ Ohio Energy Bill (Senate Bill 315) – Text of bill: http://www.legislature.state.oh.us/bills.cfm?ID=129_SB_315

Provisions include restrictions on who has legal standing to sue energy companies that withhold “chemical trade secrets.”  Is there a pattern here?  Jack Shaner of the Ohio Environmental Council (formerly neutral on the bill until this provision was added) said:  “’Sadly, what started out as one of possibly the most ambitious chemical disclosure laws in the country has now turned into one of the most radical and anti-public right-to-know laws in the nation,’ Shaner said,” according to an Associated Press story.

Sparks fly over Ohio energy trade secrets measure – Associated Press, May 23, 2012: http://www.ohio.com/news/ohiocentric/sparks-fly-over-ohio-energy-trade-secrets-measure-1.309138

• See also press statement from Ohio Environmental Council “Once promising Energy Plan springing leaky loopholes, missing critical parts” – http://theoec.org/PressReleases/PR_FrackingBill_5-21-12.htm

² MAJOR PUSH TO CLEAN UP SHALE GAS FRACKING AS 55 TOP INVESTORS WITH $1 TRILLION IN ASSETS WEIGH IN – Press Release from Boston Common Asset Management, LLC, May 16, 2012   http://www.bostoncommonasset.com/news/shale-fracking.php

• Refer also to the streaming audio replay of the 45-minute press conference: http://www.hastingsgroupmedia.com/BCIEHNICCR/051612FrackingGuide.mp3

³ International Energy Agency – Press statement on “Golden Rules” needed by energy industry: http://www.iea.org/newsroomandevents/pressreleases/2012/may/name,27266,en.html

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/voices-featured-commentators-and-bloggers/mike-benard-columns/  Accountability Central is part of the Governance & Accountability Institute, Inc.