The appearance of a conflict of interest within the North Dakota Department of Mineral Resources led to the introduction of a bill that would split the roles of regulator and promoter as they pertain to oil and gas development in the state. However, the bill received a do not pass recommendation in a Senate committee and its fate now lies with the full Senate.
Sen. Connie Triplett introduced Senate Bill 2366 which would replace language in the North Dakota Century Code that charges the state’s Industrial Commission to “foster, encourage, and promote” natural resource development in the state to instead specify “regulate.” Any promotion duties would be shifted to the state’s Department of Commerce.
“We would make a clear legislative statement that we want the North Dakota Industrial Commission to focus the attention of its staff on the regulatory function,” Triplett told the Senate Energy and Natural Resources Committee on Feb. 5.
Triplett also drafted proposed amendments which strike language in the initial draft of the bill that would have had the unintended consequence of keeping the governor from working with investors to promote, for instance, value-added energy.
The committee gave the bill a 5-2 do not pass vote and committee Chairman Donald Schaible told Petroleum News Bakken on Feb. 9 that he believed the bill failed mainly because other state agencies fulfill simultaneous roles of promotion and regulation, such as the agriculture department. Triplett told Petroleum News Bakken that the vote came as no surprise.
“I didn’t expect it to pass. I was trying to make a point that I consider the cheerleading aspect of the Department of Mineral Resources work to be inappropriate and that it really diminishes trust on the part of the public to see the same office in the regulatory role and also in a friend-of-the-industry role,” she said.
In her testimony, Triplett shared her observations of DMR Director Lynn Helms which caused her to “lose faith in the system.” She referred to the oil conditioning hearing in September 2014 which addressed crude oil volatility issues for development of a safety policy, but was disheartened days later at a North Dakota Petroleum Council annual meeting where she interpreted comments made by Helms as telling industry there was no need to be concerned with new regulations as they would simply be “backstopping” current practices. “I think having trust in our government is hugely important and so that’s the genesis of the bill.”
Conflict of interest?
Helms challenged the concept of a conflict of interest and asked if lawmakers plan to extend the proposed legislation to the Game and Fish Department which promotes wildlife while also regulating hunters, or the Department of Agriculture which promotes agriculture programs yet serves seven regulatory roles.
“If the answer’s no, then what we’re looking at here is anti-oil politics,” Helms said. “If the answer’s yes, then you get a clearer picture of how negative and destructive this policy direction is for the state of North Dakota.”
Triplett told Petroleum News Bakken that Helms was “stretching” to make those comparisons. She said promoting wildlife and regulating hunting are both done for the benefit of hunters, presenting no large safety issues.
“When you compare that to the notion of promoting the oil industry without regard to public safety you’re talking about potential loss of lives,” she said.
Helms insisted that promoting the industry is the job of the North Dakota Petroleum Council, not the Industrial Commission.
“What the North Dakota Industrial Commission does is promote the prevention of waste, the protection of correlative rights and greater ultimate recovery of oil and gas,” Helms said. “Thinking about the greatest possible economic recovery of oil and gas to be obtained - that’s what the statute tells us to promote.”
In January 2014, Senate Minority Leader Mac Schneider and House Minority Leader Kenton Onstad sent a letter to the Industrial Commission asking that the role of promoter be split from regulator and put in a different department because of what they saw as a conflict of interest in the DMR director’s duties.
Geological Survey’s role
Since promotion functions are done through the Geological Survey, a separate division within DMR, Helms said it would be detrimental to move a few geologists to the commerce department. State Geologist Ed Murphy testified that the geologists at the Geological Survey research and promote not only oil and gas but other resources as well such as potash, uranium and diamonds. He added that since his office often conducts “crossover” work, pulling out a subsection would create a number of problems.
Triplett said that was not her intent with the bill and explained that it would require some amendments to prevent those consequences.
“The geological survey serves an entirely broader function than just serving the division of Mineral Resources,” Triplett said. “There is a very clear line in my mind between the idea of promotion of the industry from basic research which may assist the industry.”
Instead, she said the bill is more about public perception and she’s had to defend state leaders to constituents who question the promotion role since at this point NDIC is doing what the law requires.
“If we as legislators do not change this law, we cannot criticize our state elected leaders or our state employees for doing their jobs according to the law,” she said.
NDIC versus DOC
Sen. David Hogue questioned the shift of promotion duties to the Department of Commerce saying that while the members of NDIC have long been from the same political party, the commerce department is a cabinet within the governor’s office.
“What happens when we shift promotion to the commerce department?” he asked. “It’s still controlled by the governor, so have we really accomplished anything?”
Other testimony
Three people testified in favor of the bill, including Wayde Schafer of the Sierra Club who said that promoting North Dakota’s second largest industry while also regulating it “just doesn’t feel right” and that it may have worked well before Bakken development, but it doesn’t today.
Speaking against the bill, Mike Smith, executive director of the Interstate Oil and Gas Compact Commission, said the law’s intent is for conservation with a focus of promoting on behalf of mineral and property owners. Furthermore, he warned of the risks of removing that role as a function of the Industrial Commission.
“All the states compete for oil and gas activity,” he said. “There’s all kinds of work that states do to attract industry and I think it puts you at a competitive disadvantage.”
