Part 5: The Reality of Regulations

If a new oil boom comes to the Central Valley it likely will be the most regulated boom in history. That’s different from North Dakota, where regulators let oil companies lead the way on regulations.
Regulations go hand in hand with new development, and the shale energy revolution is no exception. But what's the best approach to implementing environmental protections? North Dakota and California have taken different approaches.

The oil shale boom in North Dakota is only a couple years old, but there's been drilling in the state for a long time.

Oilman Blaine Hoffman remembers what it was like before the latest rush.

"We were more or less just maintaining the field and drilling a new well every once in a while," said Hoffman, District Superintendent for western North Dakota for Whiting Oil and Gas.

That was 10 years ago. Then industry figured out how to squeeze oil out of the Bakken shale. Now Hoffman's company produces 90,000 barrels of oil a day.

"We're trying to make the nation oil independent," he said.

Hoffman said part of the reason the boom happened was North Dakota's policy on regulations, led by Mineral Resources Director Lynn Helms.

"Our motto in North Dakota is to allow the market some room to work," Helms said. "Get the economic growth underway and then to come in behind it and then balance it with environmental stewardship and social responsibility."

"Until you know what you have it's hard to make rules," said Hoffman.

So for three years the state let industry take the lead. Then, after much deliberation in 2012, North Dakota passed sweeping regulations increasing the strength for well casings, eliminating waste water reserve pits and requiring companies to disclose some of the chemicals used in fracking.

"Nobody has to give out their formula. They just have to give out what they are using," said Hoffman.

But waiting three years meant some damage was done. Dozens of well casings cracked and waste water pits overflowed.

Helms has no regrets.

"It's very easy to make something like an oil play uneconomic by placing too high a regulatory burden on it, or tax burden on it, thinking you know what you don't know," said Helms.

Helms said this approach allows for collaboration with oil workers like Blaine Hoffman.

"We need them, another set of eyes at times, to make sure we know what we are doing, to make sure we're doing things right," said Hoffman.

In California, regulators have taken a different approach.

Last year a half dozen bills were introduced to regulate the process of hydraulic fracturing, a practice used by Kern County oil companies for years.

"The administration was very clear that this practice has been going on and there's no evidence of harm," said Tim Kustic, Supervisor for the State Division of Oil and Gas.

Even so, these bills called for more oversight, asking for documentation, restriction and even a moratorium on fracking. In the end a bill passed allowing fracking to continue but mandating oil companies disclose many details about the process.

"California now has the most strict hydraulic fracking operations of any state in the nation," said Suzanne Noble of the Western States Petroleum Association.

Before, California energy companies only had to have a permit to drill, not to frack. When the new rules take effect next year companies will need a permit to frack. They'll also need to disclose the chemicals they use in the fracking process.

But like North Dakota, companies will still be able to keep some fracking chemicals secret, to protect information from competitors.

"They don't necessarily have to disclose the recipe to the public but they do have to provide it to the Division of Oil and Gas," said Kustic.

In addition, companies will have to test water, inform land owners and pay for environmental studies. These are all rules made to prepare California for a North Dakota-like oil boom, that could come from the Monterey shale.

"If there is another boom, it will be the most regulated boom ever because there are certainly more rules on the books now then there were a hundred years ago," said Kustic.

But some in the industry feel that since exploration of the Monterey so expensive and risky, the additional costs of these regulations will slow down an oil boom, making some wish they were in Blaine Hoffman's shoes.

"North Dakota does it right," said Hoffman.

But with the potential, others are certain, if the price is right and the oil is there, nothing will stop the Central Valley from going boom.

"I do think people will complain about regulations but if someone unlocks the key to the Monterey it's not going to stop people from coming," said Janet Gillespie, geologist at CSUB.

California's regulations take effect in January.
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