The Wall Street Journal recently published an article pointing out that fewer environmental incidents are being recorded now that larger, more experienced operators have begun to supplant smaller ones in Pennsylvania’s Marcellus Shale. While this is certainly welcome news, the industry has reason to remain vigilant in greenfield regions that lack installed infrastructure and/or a pool of trained and experienced personnel.
With this in mind, we thought we’d share an updated version of the “Bad Apple” post we published back in the Fall of 2012. We hope it will serve as a reminder of the potential pitfalls that exist as the industry moves into new regions to develop an ever-expanding set of resources.
As originally posted on September 12, 2012:
Divergent views concerning the impact of shale oil and gas plays make for engaging and well-deserved discussion. One side is weighted by enthusiasm for the extent to which the shale revolution could change the global energy balance. The other hangs heavy with warnings of potential environmental disaster if producers are left to their own devices. Both make clear that progress has its obstacles.
As we see it, oil and gas industry’s biggest obstacle in achieving shale’s full potential will be gaining buy-in from both the public at large and the environmental watchdogs. Both view the oil and gas industry’s practices associated with shale development as potential risks to everything from the water we drink to the roads we drive. It will be a long process, but one at which the industry can be successful if it becomes the most committed watchdog of all.
In particular, the oil and gas industry needs to avoid an embarrassing environmental incident by a careless provider — what we call the “bad apple” scenario.
Such a scenario likely starts in one of the newer regions of oil and gas development within the U.S., some place like the Marcellus or Utica basins. Because of limited localized oil and gas infrastructure and expertise in these greenfield regions, E&P companies and/or their established primary oilfield suppliers will tend to find themselves at a loss for competent help. As a result, they will use certain contractors and/or sub-contractors they would not use in more established regions.
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The bad apple scenario centers around one of these less-established, not-fully-vetted, suppliers. We’ll call them Upstart Services. Or “Upstart” for short.
Upstart shows up on the scene one day claiming to have a couple of disposal wells on property it owns. A quick due diligence visit on the part of the customer confirms that there are in fact wells on the property. A few more questions are asked, and the customer decides to utilize Upstart. The customer does so primarily because there are few, if any, alternatives.
Operations begin, and as far as the customer knows, the waste and waste water are being taken from the well and disposed of at Upstart’s disposal site as agreed. So far, so good…or so it seems.
Although it appears to the customer that Upstart is doing what it committed to do, one of Upstart’s newer crews, made up of hands with limited oilfield experience (and even less judgement), is a little too lazy to take the load all the way to the disposal site. Instead, they decide it would be harmless, and a whole lot easier, to simply empty some or all of the load into Ole Man Johnson’s pond a couple of miles up the road. After all, what harm could it cause? Moreover, who will know?
A week later, a rainstorm hits the area. Ole Man Johnson’s pond overflows, sending pond water, along with well waste and waste water, into the nearby streams and rivers. Within a day or two, wildlife authorities, environmentalist watchdogs, and state and federal agencies begin to receive reports of problems. They soon track the issue back to the pond. Industry participants quickly figure out what Upstart had been doing, but by this time it’s too late. The damage is done.
The local, and eventually the national, press gets wind of what’s going on. In their fervor to pin the entire oil and gas industry to the wall, the press makes no distinction between Upstart and the otherwise unknowing customer that contracted with Upstart. Upstart and the customer jointly and severely comprise the “oil and gas industry” as far as the press and public are concerned. And they are both equally guilty of poisoning the local water supply in their minds. End of story…and the beginning of big problems for the industry.
To be clear, we hope such a scenario never materializes. However, if operators and their primary oilfield suppliers do not become the true watchdogs of the oil and gas industry, outside organizations will be happy to do it for them, surely in a more constricting way.
Yes, the oil and gas industry is well-positioned to reduce U.S. dependency on foreign sources of energy for generations to come. And it should be duly compensated for it. But the industry will only be able to so if it does not allow the proverbial “bad apple” to spoil the party.
I think this scenario is exactly what will happen. Pennsylvania seems willing to allow companies to do whatever suits the moment. We will probably have problems similar to that of the coal industry but with no chance of reclamation.