Property Rights Foundation of America®

from the Sixth Annual New York State Conference on Private Property Rights
November 16, 2002, Albany, New York

"Practical Experience with the U.S. EPA—Arbitrary Regulation of Small Oil Producers"

Address to Sixth Annual New York State Conference on Private Property Rights
By Steven R. Kennemuth, Olean, New York


Let me begin by thanking Carol and my good friends Tom and Pat Miller for their advice and support. Never having spoken before a large group I would not be here today were it not for their encouragement.

I would like to relate to you my family's experience with the Environmental Protection Agency as regards our small crude oil production business in Allegany County over the past twenty years.

Our problems with the EPA date back to the spring of 1983 when we received an innocuous request from the agency to provide them with a map locating all of our pressure injection wells. We thought it odd that EPA would be concerned with our small operation especially as we were not violating any laws of which we were aware. Nevertheless, in order to avoid any trouble we made a small handmade map and sent it in by the due date. Little did we know that we had taken the first step down the road that would eventually change our lives and virtually put us out of business.

In this first mailing the EPA made reference to an Underground Injection Control Program. Being considered under this program was a Mechanical Integrity Test to be conducted on pressure intake wells to determine their ability to keep injected fresh water from migrating into fresh water zones. This was all mentioned as something that was only being considered for the future and nothing to be concerned about at the present time. It was all very low key and rather vague, nothing immediate, specific or threatening. We did not discover until later that the program was already a reality and we would be required to conduct tests. To say the least, we were naïve and had a lot to learn about dealing with the EPA.

In the interest of clarity it is necessary to give a brief description of an injection well; how it differs from an oil-producing well, how one is constructed, and a short history of how they evolved.

An injection well is nothing more than a well drilled for the specific purpose of injecting fresh water under pressure into isolated oil-bearing sandstone in order to push oil to oil producing wells.

An oil producing well must have a string of casing pipe in it in order to prevent subsurface fresh water from pouring into the bore hole during drilling and afterward. If this casing string were not in place you could not pump the well fast enough to exhaust the water and produce oil. It would be tantamount to attempting to pump out the ocean. In our area one hundred-plus years of experience dictates the need for 300 to 400 feet or more of casing to get below the subsurface fresh water veins. After this casing pipe is set in place, the smaller production hole is then drilled down to the oil sands.

An injection well is drilled the same as an oil well. Casing is run until it is below the subsurface fresh water. Once the oil-bearing sand has been reached, a device known as a packer is installed in the borehole at the top of the sand. It is referred to as a "packer" because it effectually "packs off" or isolates the oil sands from the rest of the borehole. This packer has as its main feature a rubber element which expands or swells out to the sides of the hole and conforms to it when the weight of the pipe above it is placed upon it. Cement is then mixed and introduced on top of the packer and allowed to set for approximately one month before pressurized water is injected into the oil sand.

The oil industry had its birth with the Drake well in 1859 in Titusville, PA just one hundred miles south of our operation. With the maturing of the industry it was discovered that in time the casing string would develop a hole allowing the fresh water to pour into the borehole making it impossible to produce oil. Although this was disastrous to the oil well that had developed a leak, it was eventually noticed that an adjacent well or wells would increase in pumping time and produce more oil. It was determined that the oil bearing sandstone was porous enough to allow water to migrate by hydrostatic pressure alone and drive the oil bank ahead of it. In time it became common practice to convert oil wells that were no longer producing oil in economic quantities into injection wells. This was done by pulling out the casing string and allowing the water to rush into the hole creating a natural or "dump" flood.

As the oil-bearing regions were explored and expanded it was discovered that some oil sands were tighter than others, and were therefore not amenable to a natural flood.

With the legalization of water flooding by the Pennsylvania legislature in the early 1920's it became feasible to incur the added expense of installing engine-driven high pressure pumps in pressure plants and pump this water through underground lines to wells drilled specifically to inject water.

This resulted in what came to be referred to as the secondary oil recovery method because it revitalized the industry by producing a second "crop" of oil. By the end of the 1920's secondary recovery was becoming increasingly popular as the results proved to be worth the expense.

With the advent of the Great Depression and the decline in oil prices a quota system was put into effect and operators with new wells and new water floods were compelled to curtail production. This could not be done by simply not pumping the oil producing wells while allowing the injection wells to continue to operate, because the oil wells would eventually fill up and run onto the ground. It was therefore necessary to reduce the water pressure in order to cut back injection volume or shut down the pressure plant altogether. It was assumed that with the return of the oil market the pressure would be resumed and production would return to previous levels. As water flooding was still in its infancy, a costly lesson was at hand. It was discovered that once pressure is discontinued silt and other sediments are allowed to filter down into the tiny capillaries through which the water passes and the clays inherent in the sand begin to swell and close off the pore spaces. When the pressure was reintroduced countless operations that had produced hundreds of barrels of oil per day now produced only a tiny fraction of this and the rest water. Many operators went broke.

With the experiences of the 1930's still fresh in the collective memory of the oil patch, any operator of a secondary water flood knows it is imperative to attempt to maintain a constant water pressure. You simply cannot allow a leak to drop the pressure for very long. If there is a leak in the system it will be reflected on the pressure gauge in the plant. We are describing a closed system in which a leak will be detected whether it is in a ground line or down a well.

EPA demanded we conduct MIT's on all seventy-five of our wells on a regular schedule. This test was to be conducted by pouring water down the casing and monitoring the level for 24 hours. If the level did not drop more than so many feet in this time the well had mechanical integrity, meaning there were no fractures between the oil sands and the shallow subsurface fresh water veins. In effect there was no communication between the zones. An EPA employee told me once when I asked him if this had ever happened, that, no, it had not but that it could and it was our responsibility to prove that it was not happening. We are guilty until proven innocent.

Aside from being foolish, unnecessary and impossible for a small operation like ours where our wells produced only a few gallons of oil per well per day—not barrels—there was one major problem. Most of our injection wells do not have casing in them. This is so because once the packer is cemented in place there is no harm in pulling the casing and allowing the fresh water to run into the hole because it cannot get past the cemented packer. This casing could then be reused in another injection well or left permanently in an oil well. This was a common, practical, cost-effective practice that saved a lot of steel during World War II.

Without casing in the hole, it would be impossible to fill up the big hole with water. Any water dumped from the surface will simply run away underground. At some wells you can listen from the surface and hear the subsurface water running down the hole. On the flat down by the creek the water runs out the top of the hole. EPA's test makes no mention of this circumstance let alone addressing it.

After two years of attempting to comply by filling out countless forms, some of which were beyond our expertise to fill out completely, we took the initiative and invited the regional director of the UIC division at the time, one Mr. Peter Acker, to visit our operation.

We wished to impress upon EPA the impossibility of a small operation being able to comply with all the provisions of the program. Besides well testing and monitoring provisions there was also a bonding requirement to guarantee the wells would be plugged when they were no longer in use. Insurers or bonding companies are loathe to issue a bond on such an unknown liability as what it will cost to plug and abandon a well to EPA's standards many years in the future. We hoped to be able to reach an accord with EPA that would appreciate our financial limitations and yet address the agency's environmental concerns. In short, we desired a compromise of sorts that would satisfy the spirit of the program if not the letter and yet be something we could live with economically. We were attempting to find common ground, which would mitigate the effects of the rules of a federal agency where one rule fits both small family-owned operations and large corporate, multi-national giants such as Exxon.

Mr. Acker was at first hesitant to accept our invitation, saying he felt as though he might be visiting the enemy camp, but eventually he agreed.

Our main objective with this meeting was to prove to EPA's representatives that we knew when there was a leak in our pressure injection system whether it be in a buried surface line or underground down a well. To this end we had planned a practical operator's field test. When Mr. Acker and his assistant arrived and after making introductions, we had them look at the pressure gauge in the plant. At the time we were carrying 1200 psi on the system. Next we had them read the specs on the pressure pump so they would know its capacity in so far as maximum speed, volume and pressure. By knowing the capabilities and limitations of our pump, and being gentlemen with mechanical and/or engineering backgrounds, they could readily understand the following: The pump would be incapable of overcoming the effects of a leak of the magnitude they were concerned with while at the same time being able to maintain this high pressure on miles and miles of pipeline. Once they were satisfied on these points we took them to a section of water line where there had been a leak which had been repaired with a clamp. We shut off this section of water line and took off the clamp and had them feel the hole in the bottom of the line.

By the way, the hole is almost always on the bottom, of course. It's more fun when you can't see what you are doing, especially when it is about five above zero with the wind blowing and a light snow falling down the back of your neck. Also, if you are going to feel where the hole is you better do it quick before your fingers go numb. Everything is cold; the air, the pipe, the clamp, the wrench, and the water that is always running back into the hole no matter how fast you bail it out with a coffee can.

Anyway, Peter and his buddy could tell that the hole was about the size of a wooden matchstick. With the clamp removed we turned the water back on and went back to the plant and looked at the gauge that now registered 900 psi—a drop of 300 psi. This was a real eye-opener for them. They must have thought that high-pressure pumps were so powerful and had so much built in over-capacity that it would require a hole big enough to drive a car through before the pressure would drop that much. To say they were astounded would be putting it mildly. Maybe Exxon has pumps of that caliber but we are not Exxon. We went back to the line, shut it off, put the clamp back on, turned the water back on and went back to the plant and read the gauge and the pressure had returned to 1200 psi. They were now convinced that we could tell when we had a leak in the pressure system. There could be no denying what they had seen with their own eyes. It really was quite interesting and a bit amusing to observe their reactions as the reality of practical field operations began to dawn on them.

Next we took them up the hill to a pressure well that did not have casing in it. We shut the water off to this well. We had with us an old type telephone receiver attached to a metal rod that we used to find water leaks. We had Peter place this rod on top of the two-inch injection tubing and listen through the receiver. He could hear the sub-surface water rushing around and past the two-inch tubing and telegraphing up the tubing to the receiver. My father asked him how he would go about filling this big hole with water when there is a river rushing underground. To this query he jokingly responded "Dammit, Dick, don't confuse the issue with the facts." And we all had a good laugh. By now it was of course abundantly clear to them that the real world of small time oil producers was nothing like the textbooks described. When they departed for New York City, Peter told us not to do anything until we heard from him. This gave us reason to hope that surely some sort of realistic arrangement would be forthcoming.

Peter subsequently advised us to take quarterly groundwater samples from two springs located on either end of the property and have them analyzed by a lab. We did this for a while at a cost of $50.00 per test. None of the tests ever showed any pollution and we mailed all the results to the EPA. There are also two households living on the property. One drew water from a spring and the other has a water-well. Neither of these neighbors ever had any problems with their water and if they had we would have done whatever was required including drilling a water well to ensure they had good water.

We never heard anything back from EPA concerning these tests and after a while we became curious and placed a call to EPA in New York City attempting to talk to Peter Acker. We were told he was no longer the director of the UIC division in our region and was in another office down the hall. We were further informed that he had never been authorized to recommend ground water monitoring.

We knew we had given Peter an education in the real world of oil production and perhaps his superiors felt he was becoming sympathetic to our situation much to their chagrin and determined it was time for him to move on. We do not know as we never heard from him again. We do know that there were others who followed Mr. Acker in this post and the same scenario was played out each time. As soon as one of them began to become educated to the realities of the oil patch in our area, they were replaced. We don't believe it was mere coincidence that the same pattern was repeated each time.

It was at this point that we reached the conclusion that we had come to an impasse with the EPA. We had spent considerable resources in time and effort and some money in an attempt to reach an accommodation and now determined that our only viable course was to continue day-to-day operations and await further developments.

As it came to pass, we subsequently operated our injection system past an EPA mandated arbitrary shut-down date. If we had shut down prior to this date, then as far as EPA was concerned the wells posed no environmental threat. If the wells were active even one day past this deadline, then they were considered a hazard. We remain at a loss to understand this type of reasoning.

It would seem to make much more sense to continue operating the wells and if there was a problem with a well you would immediately know it and could make necessary repairs. When everything is shut down, you have no way of knowing when a well develops a hole in the pressure tubing. The whole program is counterproductive.

EPA put us in a no-win situation. Either continue operating the injection system and comply with all the regulations or shut down and kill what little production we still had besides being fined at the rate of $25,000 per day per violation.

Even new oil wells in our area are comparatively small producers. The oil-bearing sands are tight formations and give up oil very grudgingly. This is why it is necessary to introduce pressure into the sandstone's to push the oil to the producing wells. Our wells range in age from 1903 to the newest my father drilled in 1968. With these older wells, daily production is measured in gallons per day, not barrels. Discontinuing the pressure represented a major economic decision on our part as it directly impacted the amount of daily oil produced and, of course, monthly income.

I want to stress that the reason we did not want to shut down the pressure system wasn't because it was so much fun to operate. Water injection in our oil patch is a necessary evil. It represents a significant expense in money, time and labor to maintain a water supply well, water storage tanks, a filter system, engines, pumps and miles of buried pipe lines over all types of terrain and in all types of weather. Bear in mind that this is twenty-four hours a day, seven days a week, year in and year out.

Eventually we had a meeting with the EPA in May of 1986 at which time we agreed to discontinue our water flood in exchange for a promise to cancel the fines and end the harassment. When we showed up the next day we shut the gas valve to the engine, ending forty-five years of water flooding on the property. Not one gallon has been injected since that day. Shortly thereafter we were informed by mail that EPA's representatives had not been authorized to offer such a deal and it was now too late to reach an accommodation. The fines would continue at the rate of $25,000 per day per violation. After these fines had run up to astronomical figures we were informed that EPA had turned our case over to the Justice Department for enforcement. Justice has exercised a judgement against the company and imposed a fine of $152,053.98. How this figure was arrived at was never explained to us.

As luck would have it, at the same time we discontinued water flooding, OPEC decided to recapture market share by flooding the market with crude. The price of oil fell from $25.00 per barrel to $13.00. This drop, combined with the loss of production due to discontinuing pressure injection, of course had an immediate and drastic effect on our finances. If we had not gotten out of debt just the year before, we would have lost everything including my parents' house. I vividly recall a phone conversation we once had with a representative of the Justice Department in which she rudely informed us that if the fine were not paid they would take the house. Justice has also claimed they can attach my father's social security check to put toward the fine.

I also remember another incident when my father and I came home one night two days before Christmas and my mother informed us a Federal marshal had come to the door with some notice or other. I don't remember just what it was. My mother was ever the soul of patience but on this occasion she told him she knew why he was there and what she thought about it. Before he left she said he apologized and said he was sorry but he was just doing his job. This one incident of having shown up at the house just before Christmas speaks volumes of EPA's and the Justice Department's tactics of threat and intimidation. I believe the threat of losing everything my parents had spent a lifetime to build had an adverse effect on mother's health and had a hand in her sudden and untimely death in 1996.

We did not drill the vast majority of the wells in question. All the wells were drilled and completed in accordance with all the laws on the books at the time. We are at a loss to understand how it can be right to label someone a lawbreaker for something that another party did forty-odd years ago which was perfectly legal at the time. In point of fact, there was not even an EPA when even the newest of these wells was completed. All levels of government — federal, state and local — had no problem whatsoever collecting their share of the revenue in taxes that these "hazardous," "polluting" wells helped to generate.

We further believe that our sense of the unfairness of this situation is supported by the US Constitution. If we read it correctly, Article I, section 9 explicitly prohibits the passing of ex post facto laws. A law such as this would recognize events after the fact. If this were not prohibited, any law-abiding person today could be guilty of breaking some as yet unknown future law. By passing a ban on the way these wells were constructed in the past, an ex post facto law has been passed.

Just to put this situation into more understandable everyday terms: It would be comparable to the federal government notifying you by certified mail that the house you built or bought in good faith and in compliance with all the laws in effect at that time many years ago has now been found to be in violation of a number of recently passed laws, rules and regulations. You must bring your house into complete compliance irrespective of the cost by a certain arbitrary, mandatory date. Failure to do so will result in forfeiture of your home and subject you to fines at the rate of $25,000 per day per violation. It is the exact same thing as has happened to us. Can anyone honestly think this is right and just?

In a phone conversation, Dad once asked an agent of the Justice Department why his government saw fit to give 900 million taxpayer dollars to Russia, our one-time sworn enemy, to refurbish their oil industry while emasculating our own through regulatory overkill. Dad said he would appreciate it if the government would just treat him like it treats its enemies. He received no response to this query.

You will recall that I earlier spoke of the ill effects of discontinuing pressure injection as was discovered during the Depression. Well, this very thing happened to us. We were buying pressured water from an oil company that was in the process of discontinuing operations. My father bought a property adjacent to his own that had formerly been owned by his uncle, mainly because it still had an operating pressure plant. He'd no sooner bought this property and gotten the water lines switched over and operating when the pressure plant burned to the ground in November of 1968 — just before his fiftieth birthday. He and his crew of four men had the building up and almost ready to start up within ten days. The night before start up the temperature dropped to 10 degrees below zero and froze and cracked all the water meters at the intake wells. When the plant was started back up all these leaks had to be found and repaired. This delay, along with the pressure being off for ten days previously caused a fifty-percent loss of daily production that was never regained. At this time, I was in my first semester of college and my parents had just finished building their new house after living in the apartment above the garage my father had owned and operated for twenty years. I was determined to quit school and return home, but Dad said I'd just end up going to Vietnam and come home in a body bag or worse.

Dad grew a good set of ulcers for which he eventually had to have most of his stomach removed. Mother succumbed to mental illness for which she was institutionalized on two occasions.

I only mention this incident and its aftermath as an example of the character and sense of commitment of my parents. Through it all we all pulled together. My sister and I both graduated from college. When I graduated in 1973 after missing one semester to help Dad while Mother was having her problems, the last hired man was let go. The house and the business were paid off, all the while battling the EPA. All the bills were always paid on time and not one creditor was ever stuck for one red cent. The family's good name and reputation remain intact. I personally consider this no small feat considering all the obstacles that had to be faced and overcome.

With your indulgence I would like to conclude my remarks on a personal note with a brief description of my father. He is the one who, along with my dear departed mother, has born the lion's share of the battle with the EPA. I have simply been a helper and supporter who writes the letters and tries to fill out the forms. When we shut down the pressure plant in May 1986 and the price of oil had plummeted, I had to seek other employment. I eventually went to work for Zippo Manufacturing Co., makers of the Zippo Windproof Lighter in Bradford, PA.

God willing, my father will be eighty-four years of age in five days. He has always been a God-fearing, law-abiding, self-employed, taxpaying, family man. He is a combat veteran of four major campaigns and a loyal American. He served his country honorably as a member of the 79th Infantry Division in WW II from the invasion of Normandy at Utah Beach through to the Battle of the Bulge with General Patton and ending in Czechoslovakia in May, 1945.

He is now a widower who lives alone with a little help from friends and my sister and myself. He takes care of his own housekeeping, makes many of his own meals, drives his own car, mows his own huge lawn which my mother carved out, and still travels the fifty mile round trip to the oil wells occasionally. In the winter he heats with wood. He has had numerous major surgeries and has always come through with flying colors. He is a product of the Great Depression whose father, my grandfather, also worked in the oil field and planted a big garden during the Depression to feed his wife and five sons rather than go on the dole and take a job with the WPA.

To my mind my father possesses the quintessential American character. He is a survivor and rugged individualist, a person who believes in the power of the individual to manage his own affairs and be responsible and accountable for his own conduct. He does not buy into the siren song of the greatness of a benevolent, all-powerful, big government disguised as collectivism for the good of all. He instinctively realizes this for the communism it is. He is a man of faith in a power greater than himself, a man of charity and compassion, a man of good humor and common sense. Through combat experience he has seen man at his worst in the concentration camps and yet still possesses the optimism to believe that tomorrow can be better than today. How such a man can be labeled a lawbreaker, in essence a criminal, by his own country that he risked his life under enemy fire to protect and defend is beyond my comprehension.

What has happened to our family is of small consequence in the larger scheme of things. But what it portends and the fact that it can happen, in America—the last bastion of individual freedom is important because of what has happened and is happening with increasing and alarming frequency all across our country from Ruby Ridge to Waco, to Klamath Falls. The government, our government, is turning savagely on its own people, with disastrous results.

It is through the dedicated efforts of people like Carol and yourselves — people of character, conscience, reflection and commitment — that all of our inalienable, God-given rights are protected. You stand at the gates and hold back the barbarous and I salute you. I am gratified to contribute my small effort and pray that it does some good. It is truly refreshing to be among kindred spirits. I am certain that the spirit present in this room today was alive when our Founding Fathers made their deliberations.

Ladies and gentlemen, it has been my high honor and distinct privilege to have the pleasure of being in such august company and addressing you today. It is an occasion I will always remember and cherish. I thank you for your attention and indulgence.

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