Wednesday, April 16, 2014

Crude reality: North Dakota oil boom has Utah envying its surplus green

State officials see federal control as blocking source of revenue, education funding

By Amy Joi O'Donoghue, Deseret News

Published: Sun, Jan. 12 4:06 p.m. MST

 Utah energy adviser Cody Stewart looks over the Salt Lake Valley from the state Capitol in Salt Lake City Wednesday, Jan. 8, 2014.

Utah energy adviser Cody Stewart looks over the Salt Lake Valley from the state Capitol in Salt Lake City Wednesday, Jan. 8, 2014.

(Jeffrey D. Allred, Deseret News)

First in a two-part series

SALT LAKE CITY — At times, Cody Stewart looks out his window at the state Capitol overlooking Salt Lake City and sees the lush prairie grasslands of North Dakota.

It is a lusty, fanciful view for the governor's point man on energy development.

From his vantage point, he sees how North Dakota has the nation's No. 1 economy, the country's top jobless rate and an education system rife with dollars flowing from unhindered access to natural resources such as oil and gas.

A dozen years ago, new technology unlocked the wealth of the Bakken Formation, a 200,000-square-mile layer of shale that occupies western North Dakota, and parts of Montana and Canada.

Back in Utah, the state sits on an "energy gold mine" from the world's largest source of oil sands and is home to a substantial chunk of the Green River Formation, the world's richest deposits of oil shale.

Stewart and a whole movement of conservative Republicans wonder — if Utah had access to its own resources, would the story of its anemic education funding have a different narrative?

They contemplate if Utah could enjoy its own brand of Bakken and reap the rewards that would follow — an amply funded education system — if not for the federal government that stands in the way.

"Federal land ownership is a huge impediment," Stewart said. "There is no other way to put it. There is an artificial cap on energy production that is directly related or the result of federal land ownership."

In North Dakota, each time a well in the oil boom begins producing, it generates on average $24 million in net profit. While in 2001, few outside of North Dakota or the industry had heard of the Bakken oil field, now close to 10,000 wells are producing nearly a million barrels of oil a day. Each passing month seems to bring a new all-time high in production or well completions for the state's oil and gas department.

And for every dollar that industry earns, the state takes 11.5 cents, which produced revenues of more than $2 billion from July 2011 to October 2012. One-third of that was deposited into the state's permanent fund, and that savings account balance is expected to swell to more than $3 billion by 2015.

Little Utah control

As North Dakota continues this unprecedented economic boom, as oil and revenues spurt from thousands of new wells on private and state lands that seemingly spring up overnight, Stewart looks across the vast federal acreage of Utah and sees the "what ifs" and "if onlys."

"One of my greatest frustrations is that I advise the governor on resources we don't control, which puts me in a strange position," Stewart said. "We can't pull a lever, pull back the curtain, make a phone call or do anything to make it happen. We are not in the driver's seat."

In Utah, the man who controls the most land in the state does not sit in the governor's chair at the Utah state Capitol or sleep in the Governor's Mansion.

The man technically in charge of the most acreage in Utah has an office on 200 South, next to The Gateway, on the fifth floor in offices of the Bureau of Land Management — the agency's Utah state director, Juan Palma.

"There is a constant tug of war going on out there because the federal government has so much say about what goes on within the borders of Utah," said Utah Gov. Gary Herbert. "We wish we had more flexibility and say with what is happening in our own backyards."

When it comes to ownership and control, the numbers do the talking. The BLM controls roughly 42 percent of the land mass within the borders of Utah. By comparison, between state and private ownership, Herbert is in charge of about 31 percent of the land mass.

In total, federal land ownership in North Dakota is just less than 4 percent, while Utah stands at closer to 70 percent.

"It's not lost on us in Utah that on private land, where it takes one to two months to get a permit to drill for natural gas, to get access to natural resources on public land it takes a year to 18 months — time is money," Herbert said. "We see the private sector leaving. We hear them say, 'We are going to Bakken in North Dakota or to Oklahoma or to Texas because we get a better return on our investment.' Even though we eventually get there, the investment of time takes too long."

In the meantime, the pace of extracting oil and natural gas in North Dakota shows no sign of waning.

In 2009, the state was exporting $216 million in crude oil. By 2012, the state was exporting well more than $1.1 billion worth of crude oil and the state is now supplying nearly 10 percent of the U.S. crude oil supply.

Constraint or blessing?

Both industry and Utah oil and gas regulators say Utah's huge chunk of public lands put it at a disadvantage to compete.

"Utah is not a top-tier attractive market because of the public lands constraints we face," said Jeff Hartley, an industry lobbyist.

It's been a "constraint" that has long chafed Utah's political leaders.

A century ago, then-Gov. William Spry protested the federal government's unwillingness to relinquish its control over lands in Utah. Subsequent governors — some of them Democrats — would echo the complaint.

It is a divisive issue.

On one hand, federal land ownership is the rallying cry for corrective action that would fix the problems of access and thus boost revenue, putting Utah's destiny where it belongs, in local hands.

On the flip side, critics of the movement assert that the vast Utah landscapes controlled by a D.C. landlord are the reason Utah enjoys a $6 billion outdoor recreation economy. Giving state or local government control of that acreage would leave it pillaged, plunging the state's most prized and pristine areas into an abyss of environmental abuses.

"I don't see any problems with fairness. I think it is a blessing that Utah has so many public lands," said attorney David Garbett with Southern Utah Wilderness Alliance, an organization that works to preserve and protect wilderness areas. "What a wonderful thing that people can step outside their own backyard and be in the Wasatch, visit our wonderful canyons and go down to southern Utah without worrying about no trespassing signs. It belongs to all of us. "

But Herbert and others insist that the protectionist ownership of the federal government comes at the expense of "all of us" with its management practices that are often lethargic and incompetent at best and dictatorial and adversarial at worst.

In May, Herbert testified in Washington at a congressional natural resources subcommittee meeting about the issue, asserting that the federal land management apparatus is massive, bureaucratic and too rigid.

"Just as Henry Ford offered his first customers a choice of any color car they wanted as long as it was black, federal land management agencies today provide states flexibility in land management — as long as they do it the way Washington tells them," Herbert said. "It is becoming increasingly apparent that the current federal land management process is outdated — like a Model T."

Utah's gold mine

New technology unleashed the Bakken's potential, creating a billion-dollar state budget surplus for North Dakota. Its flush fiscal times has it third in the nation for per capita spending on higher education.

The same technology — horizontal drilling and refinements in fracking, or the technique to extract oil and gas from rock by injecting high-pressure mixtures of water, sand or gravel and chemicals — are fueling banner production numbers in Utah as well.

Utah is 10th in the country for natural gas production and No. 11 for crude oil production.

In 2012, the state enjoyed its highest crude oil production since 1986, and natural gas production also set a record.

"We're sitting on an energy gold mine in so many ways," Stewart said. "People who work in the field know that the Uintah Basin is a world-class energy resource, but it tends to be overlooked here."

Stewart and others know Utah's oil shale is a different geological animal than the shale oil of the Bakken, but they also believe the technology exists to recover Utah's share of 77 billion barrels of oil in the Green River Formation.

"I would love for Utah to become the oil shale capital of the United States," he said.

But two-thirds of the oil shale resource is on federal lands. In North Dakota, the latest state report puts the number of rigs actively drilling on federally owned prairie grasslands at zero, although oil and gas development is happening at a breakneck pace on tribal lands.

While Utah is enjoying an oil and gas boom, regulators say its record number of permits reflect a shift that is taking place.

"You are seeing an overall drift to state and private lands because of the difficulty in dealing with the long federal process of getting a permit," said John Rogers, assistant director of the Utah Division of Oil, Gas and Mining.

"The thing that is not reflected is the potential," said Kathleen Sgamma, vice president of government and public affairs for the Western Energy Alliance, which represents independent oil and gas producers in the West.

"We could be doing more in Utah if not for the federal roadblocks," she said. "There are several projects proposed in Utah that cannot get out of the environmental analysis stage, some going on year seven or year eight."

But those delays, environmental groups counter, ensure precious land resources aren't torn up, ruined for generations to come. The federal government, they argue, is often the only check — albeit an often weak one — on unrestrained energy development.

While stressing he is no admirer of the BLM, Garbett said the agency rightfully should be the arbiter between resource extraction and protection — attempting a balance he said would not be and is not found if a state agency, or state lawmakers, have their say.

"It is not like I am fan of everything the BLM does, but the public has a great more ability to influence these federal agencies than it ever would the Utah Legislature," he said. "When it comes to choosing between protecting natural values, to protecting plant and wildlife that do not generate revenue from hunting, the decision is always to go for money instead of long-term interests."

But the critics of federal land management policies say the bureaucratic pace is motivated by more than just some altruistic notion to protect the landscapes; it also boils down to money.

In Utah, there are 11,200 producing wells, with the majority of those on federal lands, generating $445 million in revenue of which the state gets half. The other half goes to the federal government, which critics would argue gives them no incentive to relinquish control here or elsewhere in the West.

"It is truly a cash cow for them," Stewart said.

Rep. Ken Ivory, R-West Jordan, believes Utah ought to be the one benefiting the most from its oil, gas and other natural resources — and sees control of those federal lands as a way to replenish the state's anemic education funding.

Utah ranks last in per pupil funding for education, spending about $6,200. He and others say it would take $2.6 billion to bring Utah on par with the national average. Flush with funds and straining over the headlong population explosion brought on by the boom, North Dakota is tossing money at its education system.

The state, which operates on a two-year budget cycle, increased its K-12 education spending for 2013-15 by 28 percent, and since 2001, spending in this arena has increased by nearly 190 percent.

Utah strikes back

Frustrated at a whole host of federal land ownership issues, a new swipe at autonomy broke out in Utah. Ivory points to the lackluster pace of oil and gas development and stalemates over issues like ownership of roads, endangered species management and management of forests that unfairly face states like Utah and are unheard of in states like North Dakota.

By 2012, Ivory got HB148 passed and signed into law. Called the Transfer of Public Lands Act, the law demands the federal government cede title to BLM and Forest-Service managed lands in Utah by Dec. 31, 2014. It leaves national parks and wilderness areas untouched, but critics say resource-rich areas like the Grand Staircase-Escalante National Monument would be left vulnerable to the chopping block.

The idea is for the state to get control of the lands Ivory and others say were promised to it at statehood by the federal government. He stresses the flagrant inequities found in what he calls the "federal fault line," that shows Western states with less than 50 percent state ownership within their boundaries while states east of Colorado enjoy more than 95 percent state ownership.

Ivory and others believe greater ownership leads to greater revenue potential. He cites an Institute of Energy Research Report released in 2013 that detailed $150 trillion in mineral resources "locked" up in the West. The Green River Formation in Wyoming, Colorado and Utah, for example, holds more than triple the proven oil reserves of Saudi Arabia.

"We could become a major player in the world if we were able to access those resources," Stewart said.

Critics like SUWA and the Sierra Club say the Ivory movement is legally laughable but practically scary because of the people who buy into it — let alone the implications it holds for Utah.

"Under the various federal (environmental laws) there are multiple use mandates that require the BLM and Forest Service to put wilderness, cultural resource values and wildlife conservation on the same footing as things like oil and gas," said Stephen Bloch. "There is no similar state law that speaks to that."

Bloch said other critics say that should state agencies become vested with authority over the federal lands at issue, their single-mission mandate would cloud any vision of a "balanced" approach and compromise their ability to be stewards of long-term interests.

"Utah does not have a very good record when it comes to environmental regulation," said the Sierra Club's Tim Wagner. "(Utah Division of Oil, Gas and Mining) has never seen a project they would deny and would never take a constructive look at a project long-term before issuing a permit."

John Baza, the division's director, said it is a matter of analyzing the outcomes — and challenged the agency's critics to come up with specific examples of environmental neglect.

"I know there have been wells that we permitted on state or private land and there is BLM land right next door. If you compare the two wells, if you compare the oil production of the two wells, the two wells that are sitting right next to each other, the two agencies are going to be similar. If the outcome is the same, I would think we are doing as good of a job as the BLM."

Baza rejected the notion, too, that high-value recreation or conservation areas would be laid bare to oil and gas development should there be land ownership changes.

"We don't do that now," he said. "Why would we change the way we are applying oil and gas regulatory policy because we have more land?"

Added Rogers: "Goblin Valley, Dead Horse State Park, Coral Pink Sand Dunes State Park. We don't drill there now and we never would. I don't see it happening."

But Wagner points to legal challenges that have been launched against the division and other state agencies over a permitting process he says is way too lackadaisical and pro-business.

"The state is gambling our future for short-term profits and jobs," Wagner said. "Trust the state government? No way. I do not."

The retort from those at the helm of that state government is loud, clear and a bit indignant: that federal control is somehow better because Utahns in charge are either incompetent or greedy.

"Why do we suppose that a federal government that is broke, that spent over a trillion dollars in the first six weeks of this fiscal year … why do we suppose that type of failed political management would be somehow better?" Ivory said, showing his exasperation.

"Why do they suppose that somehow we can't govern ourselves, but people east of Colorado can? That's just nonsensical."

Monday: A look at the problems and solutions surrounding Utah's energy development.

Email: amyjoi@deseretnews.com, Twitter: amyjoi16

Related Stories

Tension dominates Utah's oil and gas development

Amy Joi O'Donoghue
Jan. 12, 2014

North Dakota oil rush fuels new chances for Utahns

Amy Joi O'Donoghue
Jan. 11, 2014
Recommended
1. RichardB
Murray, UT,
Jan. 11, 2014

Utah's education system will always be underfunded. It's not a priority of our legislature.

2. Shaun
Sandy, UT,
Jan. 11, 2014

It is comical that state leaders and the legislature use education as the reason to have access to these lands. How many times has a republican in this state said that throwing more money at education doesn't necessarily provide a better result.

Also the oil in North Dakota is actual oil in a liquid form that just has to be pumped to the surface with minimal damage to the environment . Our vast energy is locked up in oil shale which has to be mined. This would be like having Kennecott open style mines every where in this state.

3. samhill
Salt Lake City, UT,
Jan. 11, 2014

"...critics of the movement assert that the vast Utah landscapes controlled by a D.C. landlord are the reason Utah enjoys a $6 billion outdoor recreation economy. Giving state or local government control of that acreage would leave it pillaged, plunging the state's most prized and pristine areas into an abyss of environmental abuses."
----------------
Yes, as we've recently seen regarding the "proper" interpretation of marriage and the decree by a Federal Judge that Utah's citizens, as declared in their constitution, don't have it right, we see here that our Federal overlords also know the "proper" usage of the land Utah.

I suppose, if nothing else, it gives us a little more empathy for the Indian populations that once lived and dominated the land here in Utah, and the rest of America for that matter.

Nevertheless, more empathy with the Indians or not, as a tax-paying citizen of Utah it doesn't make me feel any better to have a Federal boot on my neck.

4. Kings Court
Alpine, UT,
Jan. 11, 2014

Utah could do more right now. Out of the Rocky Mountain states, Utah has some of the smallest severance taxes on mineral extraction. Utah is practically giving money away to the fossil fuel industry. I'm not sure what more energy extraction will do for Utah because they will just give that away too. For instance, Texas has a severance tax of 7.5% on its oil extraction while Utah has 3% tax on the value up to $13 per barrel, then it rises to 5%. North Dakota charges a flat 6.5% on all oil extraction.

5. Howard Beal
Provo, UT,
Jan. 11, 2014

Plus, let's just say North Dakota is North Dakota...