SUMMARY: Following a fatal explosion in a Denver suburb in April, Colorado is taking a closer look at all oil and gas operations across the state. Colorado's governor has set a Friday deadline for companies to complete inspections of oil and gas lines near homes and businesses. Dan Boyce with public media's Inside Energy reports on the tension between drilling and growing suburban development.
SUMMARY: Porter Ranch seems like a picturesque Southern California town, but an environmental disaster has been unfolding there for several months. Natural gas has been spewing from an underground storage facility, causing health issues for residents and forcing temporary relocations for thousands of households. Special correspondent Cat Wise reports.
JUDY WOODRUFF (NewsHour): Now we turn to the natural gas leak in Southern California.
Earlier this month, Governor Jerry Brown declared a state of emergency for residents of the Porter Ranch neighborhood of Los Angeles, many of whom have been suffering from health impacts since the leak began in late October. Relief well drilling efforts continue at the site, but Southern California Gas Company, which owns the well, says it could be late February or March before they are able to stop all leaks.
Special correspondent Cat Wise recently visited Porter Ranch, and she filed this report.
CAT WISE (NewsHour): On the surface, it seems a serene, picturesque Southern California town, with gated communities and views. But Porter Ranch, which is home to 30,000 residents in Northern L.A., is anything but serene these days.
An invisible environmental disaster is unfolding in the hills above the community, where natural gas, seen in this infrared video taken by an environmental group, is now spewing out from one the country’s largest underground gas storage facilities called Aliso Canyon.
STEVE CONLEY, University of California, Davis: This one leak is roughly equivalent to the entire Los Angeles Basin. It will change California’s emissions for the year, substantially.
CAT WISE: Steve Conley an atmospheric scientist with the University of California, Davis, owns one of only a handful of planes in the country with specialized equipment that can measure gas leaks from the air.
For the last several months, he’s been flying the skies over Porter Ranch to monitor methane emissions for the state. Methane, a greenhouse gas, is the main component of natural gas. And it’s extremely potent. It’s more efficient at trapping radiation and heat than carbon dioxide.
STEVE CONLEY: That first flight, we measured something like 44,000 kilograms per hour. The best number that I have come up with to give people a perspective, it’s close to 100,000 pounds an hour. Every month, it’s the weight of an aircraft carrier.
My first thought was tapping the instruments, there’s something wrong, because we have never seen anything like that on any of our flights in the past.
The Justice Department’s inquiry comes after a ProPublica investigation and years of complaints from landowners who say they have been underpaid for leasing land to the energy giant for drilling.
The U.S. Department of Justice is investigating how Chesapeake Energy pays landowners for the natural gas it drills on their property, according to disclosures made earlier this month in the company's filings with the Securities and Exchange Commission.
The probe comes after years of complaints by landowners that they are being underpaid, and an investigation by ProPublica, which found the company was using the fees it had been been paying those landowners to repay billions of dollars of hidden corporate debt instead.
Chesapeake received subpoenas about its royalty practices from the federal government and several states, the company stated Nov. 6. The company did not respond to a request for comment from ProPublica.
In lawsuits filed in several states, Chesapeake has been accused of inflating its operating expenses and then deducting those expenses from the share of income it pays for the right to drill on peoples' land. Chesapeake has paid hundreds of millions of dollars in judgments and to settle some of these cases.
In mid-2013, landowners in Pennsylvania who had leased their gas rights to Chesapeake saw the payments they were receiving abruptly slashed by as much as 97 percent. In some cases checks for thousands of dollars a month were replaced with payments for less than a dollar. Those early complaints prompted a probe by Pennsylvania's Attorney General and a letter from the state's governor, Tom Corbett, to Chesapeake's chief executive calling the practices "unfair and perhaps illegal."
A ProPublica investigation traced that shift in payments to a series of complicated corporate transactions, worth nearly $5 billion, in which Chesapeake sold its pipelines for an inflated price, but then signed long-term contracts to pay the pipelines' new owner exorbitant fees to continue to use them. While Chesapeake raised billions through the sale, it committed to repay all of that money and more in fees. The fees Chesapeake paid to the new company, called Access Midstream Partners, were then charged back to landowners, erasing much of their share of the economic bounty from the surge in natural gas drilling in the Marcellus Shale. At the same time that landowners' gas income dropped, Chesapeake was attempting to raise cash to rescue itself from enormous and mounting corporate debt.
"I think they looked at it as an opportunity to effectively get disguised financing ... that is going to be repaid at a premium,'' an executive of an energy company who routinely does business with Chesapeake told ProPublica at the time.
In July, after news of the deals was published, county commissioners in Bradford County, Pennsylvania, where much of the Marcellus drilling was taking place, appealed to U.S. Attorney Peter Smith to investigate the company. The commissioners wrote that ProPublica's reporting pointed to possible "violations of state and federal law." Several new lawsuits have also been filed against the company in Pennsylvania and elsewhere.
Throughout 2013 and early 2014, Chesapeake never responded to any of ProPublica's initial written questions or requests for interviews about the size or origins of its corporate debt and the sale of its pipeline companies. But after receiving our written questions, Chesapeake for the first time acknowledged in its quarterly financial filings that it had $36 billion dollars in "off-balance-sheet arrangements," and that much of it was related to its pipeline businesses.
Chesapeake faces other inquiries as well. Following a Reuters investigation alleging Chesapeake rigged land leasing prices in Michigan, the company was charged with antitrust violations by Michigan's state attorney general. It faces separate racketeering charges in the state as well. Chesapeake has said both sets of charges are without merit, and the two cases are expected to go to trial. The company's financial disclosures state that Chesapeake has been served federal subpoenas related to anti-trust inquiries in Michigan as well.
State’s drought has forced farmers to rely on groundwater, even as California aquifers have been intentionally polluted due to exemptions for oil industry.
California officials have ordered an emergency shut-down of 11 oil and gas waste injection sites and a review more than 100 others in the state's drought-wracked Central Valley out of fear that companies may have been pumping fracking fluids and other toxic waste into drinking water aquifers there.
The state's Division of Oil and Gas and Geothermal Resources on July 7 issued cease and desist orders to seven energy companies warning that they may be injecting their waste into aquifers that could be a source of drinking water, and stating that their waste disposal "poses danger to life, health, property, and natural resources." The orders were first reported by the Bakersfield Californian, and the state has confirmed with ProPublica that its investigation is expanding to look at additional wells.
The action comes as California's agriculture industry copes with a drought crisis that has emptied reservoirs and cost the state $2.2 billion this year alone. The lack of water has forced farmers across the state to supplement their water supply from underground aquifers, according to a study released this week by the University of California Davis.
The problem is that at least 100 of the state's aquifers were presumed to be useless for drinking and farming because the water was either of poor quality, or too deep underground to easily access. Years ago, the state exempted them from environmental protection and allowed the oil and gas industry to intentionally pollute them. But not all aquifers are exempted, and the system amounts to a patchwork of protected and unprotected water resources deep underground. Now, according to the cease and desist orders issued by the state, it appears that at least seven injection wells are likely pumping waste into fresh water aquifers protected by the law, and not other aquifers sacrificed by the state long ago.
"The aquifers in question with respect to the orders that have been issued are not exempt," said Ed Wilson, a spokesperson for the California Department of Conservation in an email.
A 2012 ProPublica investigation of more than 700,000 injection wells across the country found that wells were often poorly regulated and experienced high rates of failure, outcomes that were likely polluting underground water supplies that are supposed to be protected by federal law. That investigation also disclosed a little-known program overseen by the U.S. Environmental Protection Agency that exempted more than 1,000 other drinking water aquifers from any sort of pollution protection at all, many of them in California.
Those are the aquifers at issue today. The exempted aquifers, according to documents the state filed with the U.S. EPA in 1981 and obtained by ProPublica, were poorly defined and ambiguously outlined. They were often identified by hand-drawn lines on a map, making it difficult to know today exactly which bodies of water were supposed to be protected, and by which aspects of the governing laws. Those exemptions and documents were signed by California Gov. Jerry Brown, who also was governor in 1981.
State officials emphasized to ProPublica that they will now order water testing and monitoring at the injection well sites in question. To date, they said, they have not yet found any of the more regulated aquifers to have been contaminated.
"We do not have any direct evidence any drinking water has been affected," wrote Steve Bohlen, the state oil and gas supervisor, in a statement to ProPublica.
Bohlen said his office was acting "out of an abundance of caution," and a spokesperson said that the state became aware of the problems through a review of facilities it was conducting according to California's fracking law passed late last year, which required the state to study fracking impacts and adopt regulations to address its risks, presumably including underground disposal.
California officials have long been under fire for their injection well practices, a waste disposal program that the state runs according to federal law and under a sort of license — called "primacy" — given to it by the EPA.
For one, experts say that aquifers the states and the EPA once thought would never be needed may soon become important sources of water as the climate changes and technology reduces the cost of pumping it from deep underground and treating it for consumption. Indeed, towns in Wyoming and Texas — two states also suffering long-term droughts — are pumping, treating, then delivering drinking water to taps from aquifers which would be considered unusable under California state regulations governing the oil and gas industry.
In June 2011, the EPA conducted a review of other aspects of California's injection well program and found enforcement, testing and oversight problems so significant that the agency demanded California improve its regulations and warned that the state's authority could be revoked.
Among the issues, California and the federal government disagree about what type of water is worth protecting in the first place, with California law only protecting a fraction of the waters that the federal Safe Drinking Water Act requires.
The EPA's report, commissioned from outside consultants, also said that California regulators routinely failed to adequately examine the geology around an injection well to ensure that fluids pumped into it would not leak underground and contaminate drinking water aquifers. The report found that state inspectors often allowed injection at pressures that exceeded the capabilities of the wells and thus risked cracking the surrounding rock and spreading contaminants. Several accidents in recent years in California involved injected waste or injected steam leaking back out of abandoned wells, or blowing out of the ground and creating sinkholes, including one 2011 incident that killed an oil worker.
The exemptions and other failings, said Damon Nagami, a senior attorney with the Natural Resources Defense Council in an email, are "especially disturbing" in a state that has been keenly aware of severe water constraints for more than a century and is now suffering from a crippling drought. "Our drinking water sources must be protected and preserved for the precious resources they are, not sacrificed as a garbage dump for the oil and gas industry."
Still, three years after the EPA's report, California has not yet completed its review of its underground injection program, according to state officials. The scrutiny of the wells surrounding Bakersfield may be the start.
JUDY WOODRUFF (Newshour): Now, as shale and natural gas fracking booms in Texas, there are new questions about its possible connection with air quality and health problems.
That’s the focus of a new report jointly done by the Center for Public Integrity, Inside Climate News, and The Weather Channel. It specifically looked at drilling in a huge area known as the Eagle Ford Shale Play, where, as you can see, the oil wells are in green dots, gas wells in red.
It examined almost 300 health complaints in the region potentially linked to fracking. The industry is disputing the report.
Jim Morris is one of the journalists who worked on it for the Center for Public Integrity.
Welcome to the program.
JIM MORRIS, Center for Public Integrity: Thank you.
JUDY WOODRUFF: So, just a little bit of background. How much drilling of this kind is going on in this South Texas area and why did you decide to look at the air quality issue?
JIM MORRIS: There are about 8,000 wells that have already been drilled in the Eagle Ford Shale, which is about 20,000 square miles. Another 5,000 or so have been permitted or online.
We chose to look at the Eagle Ford specifically because it has not been part of the national conversation on fracking. And we looked at air because so much focus has been put understandably on contaminated water that we felt it was time to look at air pollution.
Don Feusner ran dairy cattle on his 370-acre slice of northern Pennsylvania until he could no longer turn a profit by farming. Then, at age 60, he sold all but a few Angus and aimed for a comfortable retirement on money from drilling his land for natural gas instead.
It seemed promising. Two wells drilled on his lease hit as sweet a spot as the Marcellus shale could offer – tens of millions of cubic feet of natural gas gushed forth. Last December, he received a check for $8,506 for a month’s share of the gas.
Then one day in April, Feusner ripped open his royalty envelope to find that while his wells were still producing the same amount of gas, the gusher of cash had slowed. His eyes cascaded down the page to his monthly balance at the bottom: $1,690.
Chesapeake Energy, the company that drilled his wells, was withholding almost 90 percent of Feusner’s share of the income to cover unspecified “gathering” expenses and it wasn’t explaining why.
“They said you’re going to be a millionaire in a couple of years, but none of that has happened,” Feusner said. “I guess we’re expected to just take whatever they want to give us.”
Like every landowner who signs a lease agreement to allow a drilling company to take resources off his land, Feusner is owed a cut of what is produced, called a royalty.
In 1982, in a landmark effort to keep people from being fleeced by the oil industry, the federal government passed a law establishing that royalty payments to landowners would be no less than 12.5 percent of the oil and gas sales from their leases.
From Pennsylvania to North Dakota, a powerful argument for allowing extensive new drilling has been that royalty payments would enrich local landowners, lifting the economies of heartland and rural America. The boom was also supposed to fill the government’s coffers, since roughly 30 percent of the nation’s drilling takes place on federal land.
Over the last decade, an untold number of leases were signed, and hundreds of thousands of wells have been sunk into new energy deposits across the country.
But manipulation of costs and other data by oil companies is keeping billions of dollars in royalties out of the hands of private and government landholders, an investigation by ProPublica has found.
An analysis of lease agreements, government documents and thousands of pages of court records shows that such underpayments are widespread. Thousands of landowners like Feusner are receiving far less than they expected based on the sales value of gas or oil produced on their property. In some cases, they are being paid virtually nothing at all.
In many cases, lawyers and auditors who specialize in production accounting tell ProPublica energy companies are using complex accounting and business arrangements to skim profits off the sale of resources and increase the expenses charged to landowners.
Deducting expenses is itself controversial and debated as unfair among landowners, but it is allowable under many leases, some of which were signed without landowners fully understanding their implications.
But some companies deduct expenses for transporting and processing natural gas, even when leases contain clauses explicitly prohibiting such deductions. In other cases, according to court files and documents obtained by ProPublica, they withhold money without explanation for other, unauthorized expenses, and without telling landowners that the money is being withheld.
JEFFREY BROWN (Newshour): And next, Ray Suarez continues his series about the changing energy picture in this country.
Tonight, he visits Colorado, where natural gas is taking center stage, prompting questions about the future of both coal and alternative energy resources.
RAY SUAREZ (Newshour): For a long time, it was simple and straightforward here in Colorado. The coal sits in big fat seams close to the surface. Strip off a layer of soil, pull out the coal, burn it right next door to make electricity, and sell what you don't burn right here. It's not so simple anymore.
Increased federal regulations of electric power plants have made it tougher to meet EPA guidelines burning only coal. At the same time, the price of natural gas has been dropping, and we have been finding it in more and more places.
And that has set up a tough battle between the coal companies and the natural gas industry.
When the new regulations are fully phased in, Colorado utilities are going to burn a lot less coal, converting some plants to burning natural gas, shutting others down altogether.
At a Christmas Eve gathering in 2008, a natural gas explosion (9/9/2010) in a suburban Sacramento neighborhood killed a 72-year-old man and injured his daughter and granddaughter. Investigators determined that Pacific Gas and Electric was to blame for a leak, but federal and state regulators never cited the utility for safety violations.
It was one example of what many experts and studies say is weak oversight of gas pipelines in the United States, a problem that has contributed to hundreds of pipeline episodes that have killed 60 people and injured 230 others in the last five years. Those figures do not include the final toll of the explosion of another Pacific Gas and Electric pipeline this month in San Bruno, Calif., that left seven people dead and more than 50 injured.
Though the cause of that explosion was still under investigation, it was the latest event to raise concerns among safety experts. Several independent government reviews, going back several years, have found systemic problems with the way the Pipeline and Hazardous Materials Safety Administration, the federal agency in charge of pipeline oversight, enforces safety rules.
In 2004, for example, the General Accounting Office documented how pipeline safety enforcement “needs further strengthening.” It noted that average fines of less than $30,000 offered little deterrence and that the agency had trouble collecting the fines.
A 2008 Congressional Research Service report said that the enforcement strategy of federal agencies of the nation’s pipelines was an “ongoing concern.”
“I believe there is a lack of a strong safety culture in the natural gas industry,” said Jim Hall, the chairman of the National Transportation Safety Board from 1994 to 2001 and an experienced pipeline investigator. “When you have a lack of enforcement activity, you end up with a tragedy.”
An examination of the pipeline agency’s safety record points to many shortcomings, as well. For example, a review by The New York Times of all enforcement cases initiated during the past eight years shows that a third of them are unresolved.
