Destroying our Independents
James J. Drummey
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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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