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Drilling Industry Says Diesel Use Was Legal

After three members of Congress found that drilling companies used more than 32 million gallons of diesel fuel to hydraulically fracture oil and gas wells between 2005 and 2009, the industry is fighting back, not by denying the accusation, but by arguing that the EPA never fully regulated the potentially environmentally dangerous practice in the first place.

Nicholas Kusnetz contributed to this report.

After three members of Congress reported this week that drilling companies have been injecting large amounts of diesel fuel underground to hydraulically fracture oil and gas wells, the industry is fighting back -- not by denying the accusation, but by arguing that the EPA never fully regulated the potentially environmentally dangerous practice in the first place.

According to a letter to the EPA from Henry Waxman, D-Calif., Edward Markey, D-Mass., and Diana DeGette, D-Colo., 14 fracking companies injected more than 32 million gallons of diesel fuel into the ground in 19 states between 2005 and 2009. And they did it without asking for or receiving permission from environmental regulators in those states. Diesel fuel contains benzene, a known carcinogen, which has been detected in water supplies near drilling facilities across the country.

At first, the lawmakers' findings look like the prelude to a slam-dunk criminal case.

The 2005 Energy Policy Act states that hydraulic fracturing using diesel is subject to federal regulations that protect drinking water by governing the injection of materials underground. Those injection regulations, contained in the Safe Drinking Water Act, say that companies need a permit before they put anything down a well.

By the lawmakers' reading of these statutes, the drilling companies broke the law.

But the energy companies now say there was no law to break.

"We are not questioning that EPA has the authority to regulate hydraulic fracturing under the Safe Drinking Water Act if diesel fuel is being used. It's the fact that there are no rules to do that," said Lee Fuller, vice president of government relations for the Independent Petroleum Association of America and executive director of industry-funded Energy in Depth.

An e-mail that ProPublica received from Halliburton, which the lawmakers said used 7.2 million gallons of diesel fuel in violation of federal requirements, supported that view. The company said it had not violated any laws, "because there are currently no requirements in the federal environmental regulations that require a company to obtain a federal permit prior to undertaking a hydraulic fracturing project using diesel."

So how can the two sides be so clearly divided in their interpretation of the law? The conflict goes back to a series of agreements and reports that over the years have tried to address the environmental risks inherent to diesel use and hydraulic fracturing but have never succeeded in settling the essential questions.

The effort began in 2004 during the Bush administration, when the EPA last published a study of hydraulic fracturing. That report, which has been criticized by scientists and environmentalists as incomplete, concluded that hydraulic fracturing did not pose a threat to drinking water. But it was clear about one exception: When diesel fuel is used, hydraulic fracturing is not safe and could indeed endanger drinking water.

Based on this, the Bush administration took two steps to limit the use of diesel.

First, it sought a voluntary handshake agreement by the three largest drilling contractors then responsible for some 95 percent of fracturing operations in the United States. The companies -- Halliburton, BJ Services and Schlumberger -- all volunteered to stop using diesel fuel in coal bed methane gas wells, according to a signed memorandum of understanding. At the time, gas wells drilled into coal beds were the focus of the EPA's consideration, because they are often near shallow aquifers.

Second, the Republican-led Congress wrote in an exception to the so-called "Halliburton loophole" in the 2005 Energy Policy Act, which stated that hydraulic fracturing could not be regulated under the Safe Drinking Water Act. According to the language of that law, the use of diesel fuel for fracking would still qualify for regulation.

The drilling industry appeared to accept not only the finding that diesel was dangerous in fracking, but that the federal government was going to regulate it. And it was widely assumed that diesel fuel had largely been eliminated from fracking as a result.

When pressed on the issue last just year, for example, Energy in Depth, which is run by Lee Fuller, the man now arguing that the EPA has no regulatory standing, wrote on its website that diesel use shouldn't be a concern, partly due to "the fact that federal statute explicitly identifies diesel fuel as a substance that, if used, immediately lands that operation under the regulatory authority of EPA."

All sides seemed to be in agreement.

"We knew at the time the [voluntary agreement] was signed that these service companies made up 95 percent of service operations taking place ... and that they discontinued the use of diesel fuel and they continue to report that they do not use diesel fuel," an EPA hydrologist who worked on the 2004 report, Jeffrey Jollie, told ProPublica in 2008.

Ben Grumbles, the EPA's former assistant administrator for water, said last year in an interview with ProPublica that "this was a positive step, and a sincere step forward for us to make sure that... they knew we were watching this and knew that it could be a problem if they used this sort of a process."

When ProPublica questioned industry representatives about diesel in recent years, they responded in a chorus, strongly implying that the EPA agreement had effectively forced the industry to widely adopt best practices.

In July 2009, David Dunlap, then the chief operating officer for the fracturing company BJ Services, which has since been acquired by Baker Hughes, told ProPublica that after the 2004 agreement forced BJ Services to stop using diesel in coal bed methane wells, "it really was a practical matter" to phase it out in all wells. It didn't make sense to have two different systems, he said, so the industry was gradually phasing it out. "It's probably the biggest single move the industry has made to get greener," Dunlap said, referring to the ripple effect of the agreement.

"I can't speak for every fracturing company in the U.S., but we have gone strictly to mineral oil slurries," he added, referring to the mixture of fluids pumped underground. "We don't use diesel in any slurries in the U.S. today. None."

Others were equally adamant. "Yeah, there used to be diesel," David Holcomb, director of research for the Texas-based drilling chemistry company Frac Tech, told ProPublica in 2009. "We never added benzene to a fracturing fluid, we never have and never will. We don't do that anymore."

The lawmakers report that in fact BJ Services injected 11,555,538 gallons of diesel fuel between 2005 and 2009, and that Frac Tech injected 159,371 gallons in that period. Waxman's office did not respond to ProPublica's questions about exactly when those injections had occurred, so it is impossible to know if the injections were made after Dunlap's and Holcomb's statements. Dunlap, who now works at Superior Energy Services, did not respond to a request for comment. Holcomb said the lawmakers didn't understand the information they had collected, and that Frac Tech might have used diesel to clean its lines, but that it had not used it in fracturing fluids.

Now, however, the industry seems to be abandoning its stance that diesel fuel has been phased out for a new one based on the legal readings. That means the diesel revelations are now more likely to land the simmering 15-year debate about the interpretation of hydraulic fracturing regulations -- which began in a mid-90s Alabama lawsuit -- back in court.

A spokesman for Baker Hughes -- the drilling firm that acquired BJ Services -- said that his company hadn't violated any laws, arguing that the EPA agreement not to use diesel applied only to coal bed methane wells and that the EPA never articulated its rules under the Safe Drinking Water Act for other applications.

"The regulations did not expressly address or prohibit the use of diesel fuel as fracturing fluids," he said, adding that the company phased out diesel fuel sometime before 2010. "We believe that retroactively creating a permitting requirement is clearly improper... there was nothing in the federal regulations –--it neither addressed it or prohibited it."

And there is the kernel of the fight. In July the EPA posted an updated page to its website clarifying that it expects drilling companies to file for permits before using diesel-based fracture fluids. The IPAA immediately filed objections in court, arguing that while the Energy Policy Act of 2005 gave the EPA the right to regulate diesel fracturing, it didn't specify when or how it should do it. The agency is only now laying out the rules that would put the law into action, and it is doing it retroactively and arbitrarily, according to Fuller, the IPAA vice president. He said the EPA's website clarification is "not proper rule-making."

"What they should do if they are going to set up a rule structure is they need to go through the normal rulemaking process," he added. "You submit a proposal, go through public comments, then review those comments."

The Obama administration is arguing, according to court filings, that the law always obligated the EPA to enforce the Safe Drinking Water Act and that a website change articulating that policy does not amount to a change in regulations at all.

It is not yet clear whether the government will launch a criminal investigation into the diesel use reported by the three Democrats, or wait for the legal issues to be ironed out by a judge. When asked, an EPA spokeswoman would only say that the agency is still reviewing the information it received from the lawmakers.

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