Destroying our Independents
By James J. Drummey
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Source: The New American, January 1, 1990
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Lois
Brenan is a delightful lady. She's friendly, well-spoken, and very spry
for a woman who just celebrated her 88th birthday. But, in the past two
years, Mrs. Brenan has suffered a severe case of the shingles and she
continues to have difficulty sleeping at night. Not because of any
physical or mental ailments, but because of a running battle with the
Pennsylvania Department of Environmental Resources (DER) and the
federal Environmental Protection Agency.
For nearly 50 years, Mrs. Brenan has had a small oil lease in western
Pennsylvania that currently produces about three barrels a day (a
barrel holds 42 gallons of oil). The lease, which is actually worked by
her son Jerry and his wife and provides no income to Mrs. Brenan, is
one of thousands of similar family operations in the state that don't
make much money but do provide a high quality of crude oil.
In January 1989, a DER employee inspected the Brenan lease without
their knowledge or permission. James Erb, director of DER's Bureau of
Oil and Gas Management, told THE NEW AMERICAN that such on-site
inspections, as well as aerial surveillance by helicopter, are allowed
by law because oil production is a regulated industry. The Brenans were
cited for violations of the state's Clean Streams Law and the Oil and
Gas Act.
A Fine Mess
The alleged violations, which call for fines totaling tens of thousands
of dollars, included failure to register or bond their wells and "an
unpermitted discharge of industrial waste, including brine." The
"industrial waste" was water. To force oil through the sandstone, the
Brenans pump fresh water into four injection wells. The oil that is
extracted from a fifth well is mixed with water, which is then
separated from the oil and drained into a pit.
To avoid the fines, Mrs. Brenan and her son would have to spend
thousands of dollars either to bond their 18 wells, at a cost of
$25,000, or to plug them with cement, stone, and Aquagel, at a cost of
about $2,000 for each well. The Brenans found themselves facing a
dilemma: They couldn't afford to meet the DER's bonding requirements,
or the cost of plugging the wells if they decided to go out of business.
As one man familiar with the situation put it, "The present-day
Pennsylvania oil business may be the only business in the entire
country where we have to pay to put ourselves out of business if the
government deems it necessary to shut down a well for any reason, or if
they condemn it, or if they say it is a non-producing well."
Friends of Mrs. Brenan went to the state capitol in Harrisburg and
described her plight to Governor Robert Casey and Lieutenant Governor
Mark Singel. A member of Singel's staff contacted the DER in April and
asked that consideration be given to Mrs. Brenan because of her age and
recent health problems. But someone in the DER called in the EPA. An
EPA inspector visited the Brenan lease in May, found alleged violations
of federal injection well regulations, and fined the Brenans $125,000.
R. David Myers, the DER's Deputy Secretary for Public Liaison, promised
in August to investigate the matter.
Targeting Widows
Another target of the DER is Anita Fisher, a 78-year-old widow confined
to a wheelchair. Her son operates Mrs. Fisher's three wells, which
provide her with about $750 a year to augment the $400 a month she
receives from Social Security. In October, a DER inspector cited her
for failing to register or bond her wells and for water and oil
spillage around her tanks. The inspection report mentioned a "kill zone
path" leading away from one tank. In point of fact, however, what the
inspector called a "kill zone" is merely some dead grass caused by 70
years of oil production in the area. The path is about two to three
feet wide near the tank, but dwindles to only a couple of inches in
width. A path leading from another of Mrs. Fisher's wells ends at a
flourishing pear tree. There is no apparent damage to the environment
on her property; yet, she faces costly fines.
When the DER realized that Mrs. Fisher could not pay $7500 to bond her
three wells, it suggested that she pay a fee of $50 a year per well for
as long as she operates the wells. But $150 a year, plus the one-time
registration fee of $15 per well, is an expense Mrs. Fisher can ill
afford.
Public awareness of Mrs. Fisher's predicament -- as well as those of
Lois Brenan and Margaret Stewart, a 56-year-old widow who also has
three wells but is too young to collect Social Security -- was
heightened in October when the three women appeared on a television
program in Pittsburgh hosted by consumer advocate Wayne Van Dine of
station KDKA. But their fear and anxiety continues. "I wish I could
sign my name to something and wipe out all the pain," Mrs. Brenan told
THE NEW AMERICAN.
DER Snoops
Virgil Ruhlman's family has worked small oil leases in Pennsylvania
since 1913. When Virgil's father died two years ago, the Ruhlmans were
producing about six barrels of oil a day. That production is now down
to 3½ barrels a day as Virgil struggles to operate 20 wells by himself.
Over the years, DER inspectors and U.S. Forestry Service officials had
told Virgil several times that he had one of the "cleanest leases
around." Nevertheless, in January 1989, after three visits to his
leases without prior notice, the DER cited Virgil for not having his
wells registered or bonded and for polluting a stream with water
produced while oil is being pumped out of the ground.
Virgil's practice, like that of many other small producers, is to
collect the produced water in an aeration pit, allow the slightly salty
liquid to be diluted by rain, and then let it run off from the pit
about once a month. This, according to the DER, constitutes pollution
of the streams of Pennsylvania. But, notes Virgil, the only stream near
the lease is "loaded with trout," and fishermen are lined up on its
banks each year when the fishing season opens.
What bothers Virgil is that the DER agents came on to his property
without ever contacting him. "I would be glad to take an inspector
around," he told THE NEW AMERICAN. "All I want is 24 or 48 hours
notice. What is wrong with people who can't come to you face-to-face?"
Virgil is also concerned about his 71-year-old uncle, a World War II
hero with three Purple Hearts and six Bronze Stars who is being
harassed about his 10 to 12 wells, and other members of his family to
whose homes he supplies gas: "When I go down, my mother, my sister, my
two uncles -- they're out of gas, and the closest distribution line is
four miles one way and nine miles the other."
Penn Fountain
The first successful oil well in the world was drilled by Colonel Edwin
Drake in Titusville, Pennsylvania in 1859. Hundreds of thousands of
additional wells have been drilled since then in the vast oil patch in
western Pennsylvania, but knowledgeable producers estimate that perhaps
60 to 70 percent of that oil is still in the ground awaiting new
technologies to recover it. Unlike the asphalt-based crude oil found in
places like Texas and Oklahoma, Pennsylvania oil is paraffin-based. Its
naturally high viscosity index makes it ideal as a lubricant; almost 40
percent of all the lube oil in the United States comes from
Pennsylvania crude. The wax contained in it also makes it suitable for
use in cosmetics, medicines, and the coating for chocolate candies.
In the early decades of oil drilling in western Pennsylvania, oil
sometimes ran down the roads and waterways of the region and there were
spills and even fires, but no permanent damage to the environment. The
area today is green and beautiful, boasting the cleanest rivers and
highest quality trout streams in the state. Hillsides that were once
covered with drilling rigs are now lush with vegetation. Trees have
grown up through soil that was once saturated with oil. There has been
no observable ruination of the ecology.
Some environmental problems did develop a decade ago when the price of
oil jumped to $38 a barrel and promoters from out of state came to
Pennsylvania looking to make a quick buck. Their furious and careless
drilling operations caused a serious disturbance of the environment and
prompted the state legislature in 1984 to pass the Oil and Gas Act,
which imposed severe restrictions on the oil industry. But, instead of
hurting the bad guys, who were already leaving the state as the price
of oil began to come down, Act 223 adversely affected the small
producers who had the best interests of their local communities at
heart and who, because they often lived near their own wells, were very
conscientious about protecting the environment,
PIPP's Moms and Pops
When it became clear in 1985 that Act 223 was going to force many of
the little guys out of business, a group of them formed the
Pennsylvania Independent Petroleum Producers Association (PIPP). These
were "Mom and Pop" operators, who produced, on the average, between 500
and 1000 barrels of crude oil per year. With oil priced today at
between $18 and $19 a barrel, the average member's annual gross income
is somewhere between $9000 and $19,000. From this amount, a 12½ percent
royalty per barrel is paid to landowners who lease their property for
drilling, and operating costs (electricity, repairs, etc.) take a big
chunk out of gross income.
Tom Miller is a typical member of PIPP. A graduate of St. Bonaventure
University, Tom first went into teaching. But the lure of the oil
business was too much for him, so he left teaching to take on the risky
and dangerous task of producing oil. He thought at the time that hard
work would eventually have its rewards, but 17 years later he is barely
at the break-even point. Instead of a successful enterprise, he is
saddled with a liability that is too expensive to abandon and not
profitable enough to keep. So he struggles on, working long hours each
day for less than the minimum wage, hoping that the price of oil will
go up enough so that he can make a living.
Would Tom Miller go back to teaching if he could? No. He loves the oil
business. He loves working outdoors. As he walks across one of his
leases in the woods near Bradford, Pennsylvania, the excitement in his
voice is audible as he describes how the operation works. He displays a
Franklin gas engine built in 1914 and starts it up by stomping hard on
one spoke of the two four-foot-high wheels on either side of the
engine, which is about the size of a small car.
A conveyor belt about two-feet wide runs from the engine to a rotary
gear assembly, from which steel rods reach out to four wells about a
hundred yards away and move their pumping jacks up and down, drawing
the oil from deep in the ground. The oil goes through a separator,
which diverts the oil into a tank and the produced water into a pit. Is
the water a hazardous substance? Apparently not to the deer who drink
it. In the mound of dirt surrounding the pit, there is an indentation
made by deer sliding on their bellies to drink the water in it.
Presumption of Guilt
According to PIPP, provisions of the Oil and Gas Act presume the guilt
of well operators if water pollution occurs within 1000 feet of a
drilling site; permit random, warrantless searches of a drilling site
or of the home where the operator keeps his records; and compel the
compilation and release of records by those charged with criminal
activities, in violation of the Fifth Amendment's privilege against
self-incrimination. James Erb insists that, while DER is allowed to
inspect a property without notifying the owner, "the law does not
permit entry into someone's home without an invitation by the owner,
and DER has never done that."
PIPP challenged the constitutionality of these provisions, but the
Pennsylvania Supreme Court ruled in November 1988 that the case was
only hypothetical, that no one had yet been hurt by the law. In the
spring of 1989 the U.S. Supreme Court also refused to hear an appeal
from PIPP's attorneys.
Another part of the Oil and Gas Act that PIPP feels must be modified is
the bonding requirement of $2500 per well, with a maximum of $25,000 if
a producer has more than 10 wells. It is virtually impossible, however,
to obtain a surety bond. No bonding company wants to write one, because
it would be held responsible for any problems associated with a well
until one year after the well is plugged.
Instead of a bond, the DER wants a certificate of deposit or a bank
letter of credit indicating that a producer has $25,000. This sum is no
problem for large producers like Quaker State, Pennzoil, or Witco, but
it is way out of reach for most of the 5000 small producers in the
state. According to Erb, more than 1100 producers (about 25 percent of
the total) are currently bonded in Pennsylvania. He claims that those
1100 represent 70-80 percent of the wells in the state, but admits that
this figure includes big companies with thousands of wells each.
Some states have reasonable bond requirements -- say, $250 a year
renewable on an annual basis, according to PIPP -- while other states
insist on a performance bond, one that covers the drilling of a well
but is released once the drilling has been completed. "A performance
bond is the answer," says Glenn Weaver, the president of PIPP and a
fourth-generation oilman whose 75 or 80 wells produce about seven
barrels a day. But the only compromise offered by DER is a phased
collateral bond. However, the two sides have not been able to agree on
how much money should be put down for each bond and how much should be
paid each year.
Also at issue is whether or not wells drilled before permits were first
required in 1967 should be "grandfathered" -- that is, exempted from
bonding. "We're not trying to change Act 223 environmentally," says
Weaver. "We know that if we drill new wells we must have a bond, but
why do we have to pay for history? Why do we have to bond a well that
is over a hundred years old? We are willing to bond all wells drilled
since 1967 -- that's a change in our original position -- but the wells
before that, there is no money to bond them; it's out of the question."
Also out of the question, according to Erb, is grandfathering pre-1967
wells. He said that the Casey Administration is against such an
exemption.
Sierra Club Dreamworld
PIPP members have had many meetings with Governor Casey and his staff
and have been promised assistance in resolving the conflict, but their
predicament continues. They gave the House Conservation Committee a
tour of the oil patch in February 1989, and the legislators seemed to
understand the situation and to be willing to do something about it.
But their plight remains unchanged.
"There's a cold war going on," says Glenn Weaver, "and the
environmentalists are winning it. Greenpeace and the Sierra Club are
running the show." Weaver contends that lawmakers, while sympathetic to
his concerns, are reluctant to act on legislation without clearing it
with the DER, which means clearing it with the Sierra Club. Legislators
have told PIPP members that, if they can get the Governor and the DER
to agree to changes in Act 223, the changes would "fly through the
House and Senate in two days."
The legislature's reluctance to tangle with the DER is surprising in
view of its low opinion of the agency, which has more than 4000
employees. According to an Associated Press survey early in 1989, 40
percent of the 106 legislators who responded called the DER the
worst-run department in the state. "They do not understand reality,"
said one House member. "They are in a dreamworld with the Sierra Club.
It seems nobody in DER understands how to administrate; they only know
how to regulate." One senator thinks "there should be a wholesale
investigation of DER. The department refuses to work with legislators
or local officials. The agency is inflexible and unyielding."
That inflexibility could mean the demise of the small independents, who
produce about four million barrels of oil and one billion cubic feet of
gas each year. It could mean the loss of 6000 to 7000 jobs, and of
economic benefits to thousands of people who derive royalties from the
leases. Equipment worth millions of dollars lies idle; a company that
had 35 employees a few years ago now has three; and new wells are not
being drilled. Furthermore, a DER demand that producers undergo the
additional expense of having "polluted" water trucked away to disposal
plants will surely put many of them out of business. These and other
regulations, says James Erb, are going to cause the small independents
much more trouble than the bonding issue.
War on Manufacturing
PIPP members are not only concerned about their own livelihoods; they
are also worried about the possibility of their country becoming
dependent on foreign suppliers and being squeezed by OPEC nations.
"There is no way that a country can survive as a service country," says
Sam Richey, owner of the Oil Cat supply company and treasurer of PIPP.
"We have to manufacture something. We have to take raw material and
make a finished good out of it in order to survive as a country. When
we get to the point where we have to import the oil that we ought to be
producing ourselves, we're at the mercy of the nations around us."
The environmental movement is weakening America, Richey continues. "We
used to be the leader in manufacturing. Where are we today? We're
losing it left and right. Look at steel, look at the foundries, look at
the refineries. This nation is losing the battle for survival and
people don't even realize it." The environment is "absolutely critical
and we do need to protect it," he concedes, "but there's no way you can
have productivity in any sense without having a certain amount of
residue, or dirt, or byproduct."
Bill Cline is 64 years old and, except for several years in the
military, has been in the oil business all his life. He gets about 36
barrels of oil a day from his 200 wells, three of which are in his own
yard, one only a dozen feet from his kitchen door. He also owns a well
in the parking lot of the McDonald's restaurant in downtown Bradford.
In 1988, the Clines -- who receive no salary from the business, while
employing five men, including their two sons -- lost $52,150. "Dollar
for dollar, we broke even," says Bill's wife Joyce. "But, when you
figure in depreciation and the depletion allowance, we lost more than
$50,000. That left us no money to put back into the business."
Nor can the Clines walk away from their business. "We love the work;
it's in our blood," says Bill. "You know, like the farmer, he plants
his usual crop and loses it, but he plants again next year. Sometimes
they get subsidized, but we don't get anything. If we all walked away,
the state couldn't possibly take care of the problem that would exist."
Bill boasts that "nobody's a bigger volunteer to take care of problem
wells than I am. The DER would even tell you that. If there's a problem
well around this area, they call Bill Cline. I'll be there long before
the DER is. When they come, they just write somebody up. I take care of
the problem."
Berserk Bureaucrats
The state has plugged only two wells, one of them at a cost of $58,000,
since Act 223 went into effect, observes Bill Cline. "I've plugged 120
and they want me out of business!" Bill notes that the new DER
regulations have doubled the cost of plugging a well in the Bradford
area, to about $2,000, even though the old plugging requirements were
sufficient. "They can't show me a well that was plugged under the 1955
law that has leaked," he asserts.
The DER always goes "to the extreme," Bill says. "They're not trying to
work with us. They don't come out and say you've got a problem here,
let's try to solve it. They assume environmental damage without any
evidence of it." It was undoubtedly the Clines' role in PIPP (Bill is
legislative chairman and Joyce is secretary) that prompted the DER to
select the Clines as the first persons in the state to be cited for not
having their wells bonded and registered.
When the DER threatened to come to the Clines' house to obtain their
business records, Bill told them: "I'll have 200 men around the house,
not to stop you from getting in, but to see if you can get out again."
They went to his attorney next and "asked for all my bank statements,
any property transfers since 1985, any stocks, bonds, just everything
but my grandchildren. I countersued them for discrimination, but you
can't sue them; they're above the law." The thing that really bothers
the nearly 500 members of PIPP, says Bill Cline, is that "every day we
lose another freedom. Most of us are veterans, and I don't think this
is what we put our lives on the line for."
That is why PIPP is digging in its heels, says Glenn Weaver. "We have
fought long beyond dollars; we're fighting on principle now. We're not
going to quit. If they take us down, they're going to take us clear
down the tubes." Weaver concludes that "all we can hope to do is refine
the Act, so the little man can somehow cope with it. And, when that
happens, try to cooperate and work with the DER and hope that something
changes the environmental push in this country. We want a working
relationship with DER. We want to get this thing solved so we can go
back to work."
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