Colorado-based oil and gas firm PDC Energy agreed this week to pay a $35,000 penalty for a very public oil spill in a Windsor, Colo., community.
The fine was large for an oil company operating in Colorado, as state laws cap the fines oil companies are charged at $1,000 per day, per violation. Considering the spill lasted two days and violated, at most, three state regulations, its fine should have been capped at around $6,000.
But the Windsor spill was different.
It happened in the midst of a populated area, within eyesight of neighborhood homes, sending 84,000 gallons of what nearby Greeley Tribune writer Jim Rydbom described as a “greenish-brown sludge” out of the fracking well. While the incident was managed and capped within 30 hours, the spill had become high-profile, appearing on media outlets throughout the region.
These are some of the factors that played into the negotiations between the Colorado Oil and Gas Conservation Commission and PDC Energy.
Matt Lepore, director of the state commission, told Mint Press News that the Windsor spill was excessive and unacceptable, even while acknowledging that the company’s response was exemplary.
Yet despite that seemingly perfect spill response, PDC Energy accepted the negotiated fine of $35,000 without incident.
Had it not accepted the fee that clearly exceeded the maximum penalty, it could have taken its case to the nine commissioners that sit on the commission’s board. If that ruling didn’t go their way, PDC Energy could have taken the case to district court.
In the end, negotiations seemed to be the best fit for PDC Energy, a company working its way out of the negative spotlight.
“PDC Energy understands that the community expects and deserves accountability from oil and gas operators in regard to the enforcement of environmental regulations,” PDC Vice President for Environment, Health and Safety Adell Heneghan said in a statement, according to the Denver Business Journal.
It also gave state regulators an opportunity to flex their muscles, sending a message to other oil companies that high-profile spills will come with a fine exceeding $1,000 per day.
“At the very least, I hope industry is hearing what we’re saying,” Lepore told Mint Press News, referring to the commission’s willingness to exceed maximum fines.
But not everyone is buying the notion that PDC Energy went above and beyond with their over-the-top payout. Gary Wockner of Clean Water Action issued a statement criticizing the state’s fine structure, saying the rules are “so meaningless that a company can fine itself a minimal 42 cents/gallon for a major spill/blowout and paint themselves as self-regulating heroes.”
Do fines do any good?
Despite the $35,000 fine, business is good for PDC Energy.
Net cash flow from the company’s operation reached $52 million in the first quarter, up from last year’s first quarter report of $50 million.
Its first quarter earnings report for 2013 also boasted an increase in production of 18,500 barrels — a 19 percent rise from one year ago and a 10 percent increase from the fourth quarter of 2012.
PDC Energy isn’t alone in its fracking boom. In Colorado, oil and gas production increased more than 25 percent from 2007 to 2011, according to the commission. Along with the fracking comes an increased awareness and concern among community members that more wells will ultimately lead to more spills.
The question now is how to prevent the spills. Despite the fines, spills continue.
In one week, the oil and gas commission responded to 11 alleged violations involving seven different energy companies, one of which was PDC Energy.
In a report filed in June, inspectors described the site of a PDC Energy fracking well in Yuma County, Colo., where an “equipment failure” caused a spill in April. According to the report, the malfunction spilled 120 barrels of frack fluid near a farm. The report indicates it occurred roughly 20 feet from nearby livestock.
Another report dates back to April 19 and highlights the discovery of an old leak at PDC Energy well in Weld County, Colo. Details regarding the amount of fluid that spilled were not recorded, as the date of the leak was not known. According to the report, “a historic release was discovered during the replacement of a buried produced water vault at the Mineral Fuel tank battery.” The site is shared by PDC Energy and Noble Energy.
Groundwater samples at the site indicated that there were excessive levels of benzene and toluene present. On April 15, 6 barrels of groundwater were removed. Another test on April 16 indicated benzene levels still remained above regulatory standards.
Debate for reform
When it comes to issuing fines, the state of Colorado is in the midst of a controversy over how much is enough — and how much is too little.
Clean Water Action’s Wockner is one advocate calling for an overhaul of the fine structure in Colorado, claiming the “legislature needs to fix this problem and impose a fine structure that punishes and protects citizens.”
There was a movement within the Colorado legislature to do just that, but it was eventually killed by the very representative that sponsored the bill in the first place.
In May, Rep. Mike Foote, a Democrat from Lafayette, introduced a piece of legislation that would have raised the maximum daily fine for oil-related violations in the state from $1,000 to $15,000.
The bill, however, also came along with a minimum penalty — one that the oil and gas commission strongly opposed.
While the mission of the commission is to regulate the industry in a manner that protects the environment and its citizens, Lepore said mandating minimum violations could result in large fines on companies that technically could have been operating in the realm of safety, but ultimately fell victim to malfunctions that weren’t “based on bad conduct.”
Foote killed the bill after it was clear the main regulatory body opposed the legislation.
“The attempt is to hold the worst offenders accountable,” Foote told the Huffington Post Denver. “As someone whose job has been to impose punishment for the last 10 years, I know that the threat of a maximum fine is meaningless unless the agency has true intention to impose.”
Following the death of Foote’s bill, Colorado Gov. John Hickenlooper, a Democrat who has largely emerged as a pro-industry politician, issued an executive order requiring the commission to evaluate its fine structure and policies.
“The Colorado Oil and Gas Conservation Commission should re-evaluate its enforcement philosophy and approach and strive to structure fines and penalties to ensure that operators comply with rules and respond promptly and effectively to any impacts from such violation,” the order states.
The commission has until the end of the year to report back to the governor.
Yet as Lepore points out, the commission doesn’t have the authority to change the rule structure, as all measures must pass the General Assembly before changes can occur.