A Brief Introduction to Oil and Gas Regulation

Images of early oil fields show the environmental damage that can be done when industry is not properly and effectively regulated. In those days, there were no environmental laws and no best practices, and the abuse of monopoly power ran rampant.

In some cases, including East Texas, hundreds of wells were built right next to each other during an oil boom. Entire landscapes were cleared of trees in order to build these derrick cities.

The high rate of unregulated pumping often led to premature exhaustion of pressure within a field.

Once the pressure dropped off, the field was abandoned, leaving a wasteland of eroded soil and rusting metal. Needless to say, at that time there were no site restoration standards.

In other cases, unfair business practices were used to quash competition. The most famous early oilman in history, John D. Rockefeller, built his fortune on the ruin of his competitors, which he outcompeted by engaging in shady business deals with shipping companies. Many of his business strategies would be illegal today.

Fortunately, as the industry matured, regulators and policy-makers began to think more about the environmental impact of the oil industry. Many laws were passed to ensure fair business practices and discourage monopolies.

As time went on, a legislative framework developed that was designed to ensure that the oil and gas industry was profitable, productive, and environmentally conscious. It’s a complicated story – one we will explore more deeply in module three.

A Brief History of the EPA¹United States Environmental Protection Agency, 2015, History of the EPA, http://www2.epa.gov/, (accessed June 30, 2015).

Beginning in the 1950s the public became increasingly aware and concerned about the environmental impacts of human activities; however, prior to the 1960s little formal consideration was given to these concerns. Congress debated issues regarding these concerns for nearly 10 years before declaring a need for a national environmental policy and an executive committee that could provide advice to the President on policy issues. The statute that ultimately addressed this issue was the National Environmental Policy Act (NEPA) of 1969.

President Nixon signed the NEPA into law on January 1, 1970. NEPA declared a national policy to protect the environment. NEPA required federal agencies to provide detailed environmental impact statements for every proposal of recommendation and other actions significantly affecting the quality of the environment. NEPA also formed the Council on Environmental Quality (CEQ), which provides oversight of NEPA’s implementation, however, the CEQ was not authorized to enforce regulation.

President Nixon proposed Reorganization Plan 3 in the summer of 1970 in which he informed Congress of his plan to assemble the Environmental Protection Agency (EPA). The EPA was formed on December 2, 1970 to consolidate a variety of entities that conduct research, monitoring, standard setting and enforcement into one agency.

The Development of State Regulations

Exploration and production sectors of the petroleum industry began to initiate water protection measures in response to state statutes and regulations enacted after 1900.

Most of the early regulations on well construction and plugging were actually designed not to protect the ground and surface waters from drilling activities, but to prevent water from flooding the producing reservoir during drilling and production. Prior to 1940 most oil producers believed that royalties compensated the landowner adequately for any damage to the surface or water resources, including spills and leaks. At this time, it was not widely understood that pollution to the fresh water aquifer would render it unusable for long periods of time. Exploration and production companies drilled up until the early 1930s without much formal regulation. State legislature bodies responded to the concerns of landowners, farmers and municipal officials that water and land resources were being contaminated by oil field practices. Several states passed regulations regarding casement requirements and plugging of abandoned wells as early as 1879, but they generally had little enforcement authority.

In the early 1930s, a barrel of oil that cost 80 cents to produce was being sold for as little as 15 cents. To combat the swings in supply and demand, Oklahoma, Texas, Colorado, New York, Kansas, New Mexico, and Illinois formed the Interstate Oil Compact Commission (later to become the Interstate Oil and Gas Compact Commission) with the purpose of promoting conservation of oil resources through an orderly development of oil reservoirs. The compact also set to develop a set of model regulations that states could use to establish their own regulatory framework.

Throughout WWII many states placed moratoriums on the enforcement of any environmental regulations and practices controlling supply and demand because of the increased need for oil during the war. At the same time, the benefit of enacting regulation throughout the late 1930s had provided the United States with a surplus of about one million barrels of oil, 80% of which was produced from members of the Interstate Oil Compact Commission, which had grown to include 17 states by 1945.

From 1945 – 1960 most oil and gas producing states established a regulatory agency to enforce oil and gas conservation practices. Environmental protection continued to lag. Statutes regarding pollution control generally resulted from individual events, rather than environmentally conscious practices as a whole.

Environmental consciousness was brought to the forefront in the 1970s. The passage of the Federal Water Pollution Control Act in 1972 sent the message that the discharge of pollutants to waterways was unacceptable. Congress authorized the formation of the U.S. Environmental Protection Agency (EPA) to enforce the Federal Water Pollution Control Act. Laws passed that decade included the Safe Drinking Water Act in 1974 which included the Underground Injection Well Program, and the Clean Water Act of 1977. Twenty oil producing states applied for and received from the EPA primary enforcement authority to administer the Underground Injection Control Program.

The 1970s also corresponded with the beginning of the decline in production of domestic oil. State oil and gas regulators began to address landowners’ demands for operators to plug idle or no-longer-producing wells and many states set up well abandonment programs. In 1976 Congress passed the Resource Conservation and Recovery Act (RCRA) giving the EPA the authority to regulate the disposal of substances deemed hazardous. Fluids produced during oil and gas operations were originally excluded from RCRA. In 1988 the EPA issued a Determination that wastes produced by oil and gas operations would be regulated by the state and exempt from RCRA. In response, the Interstate Oil Compact Commission, began to use review committees composed of environmental regulators, oil and gas producers and oil and gas regulators.

Since 1990 many states have formed their own departments to administer regulations allowing for better coordination and improved documentation of the permitting of well drilling and resultant inspections.

Development of Standard Practices and Safety Guidelines

Contemporary standard practices and safety guidelines were developed through the interplay between operators and regulators (sometimes cooperatively, other times not). We’ve come a long way since the freewheeling early days of oil and gas—but without well-informed regulators, the best regulations are useless.

Now it’s time to explore the geological processes that created the conditions that allow us to access oil and gas today. It’s time to move out the realm of history and into the modern world.

It’s time to head underground.