[Mb-civic] Halliburton's Interests Assisted by White House

[Michael Butler]

http://www.latimes.com/news/nationworld/nation/la-na-frac14oct14.story

A CHANGING LANDSCAPE

Halliburton's Interests Assisted by White House

The administration has lent support to a lucrative drilling technique. Some
in the EPA consider it an environmental concern.
 By Tom Hamburger and Alan C. Miller
 Times Staff Writers

 October 14, 2004

 WASHINGTON ‹ Over the last four years, the Bush administration and Vice
President Dick Cheney's office have backed a series of measures favoring a
drilling technique developed by Halliburton Co., Cheney's former employer.

 The technology, known as hydraulic fracturing, boosts gas and oil
production and generates $1.5 billion a year for the company, about
one-fifth of its energy-related revenue. In recent years, Halliburton and
other oil and gas firms have been fighting efforts to regulate the procedure
under a statute that protects drinking water supplies.

 The 2001 national energy policy report, written under the direction of the
vice president's office, cited the value of hydraulic fracturing but didn't
mention concerns raised by staff members at the Environmental Protection
Agency.

 Since then, the administration has taken steps to keep the practice from
being regulated under the Safe Drinking Water Act, which Halliburton has
said would hurt its business and add needless costs and bureaucratic delays.

 An EPA study concluded in June that there was no evidence that hydraulic
fracturing posed a threat to drinking water. However, some EPA employees
complained about the study internally before its completion, and others have
strongly criticized it publicly since its release.

 One of them, an environmental engineer and 30-year EPA veteran in Denver,
last week sought whistle-blower protection in an 18-page statement sent to
the agency's inspector general and members of Congress. The statement
alleges that the study's findings were premature, may endanger public health
and were approved by an industry-dominated review panel that included a
current Halliburton employee.

 "EPA produced a final report Š that I believe is scientifically unsound and
contrary to the purposes of the law," Weston Wilson wrote to lawmakers.

 EPA spokeswoman Cynthia Bergman said Wednesday that the agency was
reviewing Wilson's statement but did not "believe that any of the concerns
raised by his analysis would lead us to a different conclusion."

 Cheney declined to be interviewed or to answer specific questions for this
story. His spokesman, Kevin Kellems, cited the vice president's commitment
to keeping the 2001 energy policy deliberations confidential, a principle
Cheney is defending in federal court.

 "There is an important principle at stake in protecting the ability of the
office of the president and vice president to receive the most candid and
direct advice and counsel during the policymaking process," Kellems said.

 Halliburton, where Cheney was chief executive from 1995 to 2000, is the
leader among three large companies providing most fracturing services to oil
and gas drilling operations around the world. Fracturing affords access to
hard-to-reach energy deposits by forcing pressurized fluids deep into the
earth, creating underground fissures that permit oil and gas to flow toward
surface wells. 

 Halliburton and other energy companies have applauded the administration's
support of fracturing, which they say has proved safe for decades.

 Efforts to regulate hydraulic fracturing became a concern for the industry
during Cheney's tenure at Halliburton. A group of Alabama residents went to
court in 1995 seeking to force regulation of the practice under the federal
drinking water law. Halliburton filed a brief in the case, arguing that
environmental regulation of the practice "could have significant adverse
effects" on its business.

 The company subsequently played a leading role in lobbying against efforts
to regulate fracturing under federal drinking water laws.

 Cheney, who left Halliburton in August 2000 to run for vice president, has
said he has severed all ties to the company.

 Since he took office in January 2001, Cheney has received $398,548 in
deferred compensation, and he will continue to receive annual payments
through 2005. He also has 433,333 options to purchase Halliburton stock,
according to financial disclosure records filed in May 2004.

 But his staff has pointed to an insurance policy that guarantees that the
vice president will receive the deferred compensation no matter how
Halliburton does ‹ and to his commitment to donate any profits from the
stock options to charity.

 The administration's ties to Halliburton have become an issue in the
presidential campaign. Democrats criticize the administration for awarding
the company billions of dollars in contracts in Iraq. Cheney has said he
played no role in the Iraq contracts.

 Less attention has been paid to Halliburton's domestic operations. The
company, like many in the oil and gas business, has benefited from an
administration led by two former oil executives, both of whom have made
clear their belief that too many regulatory hurdles hamper efforts to
increase domestic energy production.

Energy Breakthrough

In 1949, engineers from Halliburton Oil Well Cementing Co. gathered in an
Oklahoma field to experiment with a new drilling technique: They pumped
gasoline, napalm, crude oil and sand into the ground under enormous pressure
in hopes of stimulating oil from a 4,882-foot-deep well.

 This successful test of hydraulic fracturing would "forever change the
workings ‹ and fortunes ‹ of the energy business," said a Halliburton news
release commemorating the experiment's 50th anniversary.

 The company estimates that the technique has increased recoverable oil and
gas reserves in North America by as much as a third. About 28,000 wells a
year are fractured. Halliburton services at least one-third of the market,
analysts say.

 The ingredients used in fracturing vary with the job and the terrain. Most
of them are as benign as food additives, but they can include toxic
chemicals. In every case, the fluid includes water and a "propping agent" ‹
usually fine sand or ceramics mixed with a chemical gel ‹ that is pumped
into the cracks to keep them open. A second chemical mixture liquefies the
gel so that much of the injected water and chemicals can be removed before
the gas is extracted.

 But some of the fluid remains in the ground, a cause for concern in heavily
drilled areas.

 Energy companies say there is not a single proven case that fracturing
fluids caused contamination.

 But in Alabama, a group of residents petitioned the EPA in 1994, saying
that their drinking water had been fouled by fracturing fluid used to
extract methane from coal beds.

 They asked the agency to force the state to regulate fracturing under the
federal Safe Drinking Water Act. They argued that wells subjected to
fracturing should be held to the same pollution standards as wells used to
dispose of waste from energy production.

 The EPA denied the request. Residents asked the U.S. 11th Circuit Court of
Appeals to overturn the decision, and in 1997, the court ruled that
fracturing should be regulated under the federal drinking water law.

 The Alabama case set off a scramble in the industry, which feared it would
lead to wider regulation of fracturing ‹ imposing costly requirements for
permits, inspections and testing.

 While the court case was unfolding, lobbyists for Halliburton and other
energy companies began pressing the Clinton administration to exempt
fracturing from regulations under the drinking water law.

 They made limited progress. Former EPA Administrator Carol Browner was
called to Capitol Hill to meet with members of Congress from gas-producing
states. She said more study was needed, and the agency launched the drinking
water study that ended this year.

Cheney-Led Task Force

Nine days after his inauguration in 2001, President Bush asked Cheney to
head a Cabinet-level task force to draw up a national energy strategy.

 The task force consisted of the vice president, nine Cabinet members and
five senior administration appointees. Research and writing was directed by
two aides to Cheney supported by a working group of representatives from
participating Cabinet agencies. The working group met through February and
March, often in the vice president's ceremonial office, to develop
recommendations for the principals ‹ Cheney and Cabinet members.

 The Cheney-led task force would tackle some of the highest-priority issues
on the new administration's energy agenda: expanding oil and gas production,
improving pipeline and power line transmission systems and developing a new
approach to regulating air and water pollution.

 To the surprise of some of those involved in the effort, the Cabinet-level
panel also would consider a narrower topic of importance to Cheney when he
headed Halliburton: hydraulic fracturing.

 Cheney has cited executive privilege to keep task force deliberations
secret. But interviews and records obtained by The Times show that Cheney's
office was involved in discussions about how fracturing should be portrayed
in the report, and that it resisted EPA attempts to include concerns about
its effects on the environment.

 The Energy Department drafted language for the task force that described
hydraulic fracturing as essential to increasing domestic gas production and
that asserted that production would be hurt by regulation under the Safe
Drinking Water Act.

 Documents obtained by The Times show that in the spring of 2001, EPA
officials corresponded with the vice president's office at least three times
requesting modifications in the proposed language. The EPA specifically
asked that the report note that the EPA was studying potential environmental
consequences of the technique.

 A May 1, 2001, e-mail from the EPA to Karen Knutson, a Cheney aide serving
as deputy director of the task force, proposed the addition of the following
paragraph:

 "As a result of the Š lawsuit on hydraulic fracturing of coalbed methane
wells, the EPA recognizes this issue raises concerns and is conducting an
investigation to evaluate the potential risks to ... drinking water." The
proposed language described the ongoing EPA study of fracturing and water
quality, and noted that it could culminate in "a regulatory determination."

 On May 3, EPA employees said, they received a final pre-publication draft
of the report. Agency staff members met into the evening to discuss the lack
of responsiveness from Cheney's office on fracturing and several other
issues. They decided to ask then-EPA Administrator Christie Whitman to write
to the vice president personally to request modifications.

 The following day, Whitman initialed a memo to Cheney asking him to
reconsider parts of the final draft, including the section on fracturing.
Her note pressed Cheney to scale back the recommendation exempting hydraulic
fracturing from regulation.

 Whitman warned that the administration could be "walking into a trap" by
taking a public position against any regulation before the EPA completed its
study of drinking-water pollution.

 Whitman, who resigned last year, declined to be interviewed. Through a
spokesman, she said, "EPA offered its expertise and input on relevant issues
whenever possible," but she said she didn't recall details concerning the
task force's handling of hydraulic fracturing.

 "From my perspective, the vice president's office was driving the issue of
hydraulic fracturing," said Jeremy Symons, a former EPA staffer assigned to
the task force, who now works for a wildlife conservation organization.

 When the task force report was released on May 16, 2001, the reference to
an exemption from regulation was gone. But the report described the benefits
of fracturing in detail without any mention of the EPA study.

 "In certain formations, it has been demonstrated that the gas flow rate may
be increased by as much as twenty-fold by hydraulic fracturing," the report
said, noting that "most new gas wells drilled in the United States will
require hydraulic fracturing."

 Although Cheney declined to answer questions about his office's role in the
fracturing discussions, his spokesman, Kellems, said the task force
encouraged "environmentally sound production" of energy.

 During the next three years, the administration supported a regulatory
exemption for the practice on Capitol Hill and at the EPA.

 Cheney participated in House-Senate conference committee negotiations last
year that produced a sweeping national energy bill with a provision that
would exempt fracturing from EPA drinking water regulation. Bush and Cheney
immediately endorsed the energy bill. Some of those involved in the meetings
said they could not recall or did not know whether Cheney intervened on
behalf of fracturing.

 Halliburton spokeswoman Wendy Hall said the company "did not contact Vice
President Cheney or his office about hydraulic fracturing or the [provision
in] the energy bill."

 The bill has passed the House, but has languished in the Senate under the
threat of a filibuster.

EPA Study Attacked

Although stymied in Congress, the gas and oil industry won an important
victory within the administration.

 In June, the EPA released its long-awaited study initiated in response to
the Alabama lawsuit. The report focused on the use of fracturing to recover
methane gas from coal beds, which often lie close to the surface and near
groundwater used for drinking.

 The report concluded that "injection of hydraulic fracturing fluids into
coal bed methane wells poses little or no threat" to drinking water supplies
and "does not justify additional study at this time."

 Hall said the study confirmed Halliburton's "long-standing belief that
hydraulic fracturing poses little or no threat to drinking water sources."

 But the EPA study has come under sharp attack within the agency. An EPA
water expert, who reviewed drafts of the report before its release, said he
complained internally about several flaws. The water expert, who did not
want his name used because he was speaking without authorization, said his
concerns were largely ignored.

 Wilson, the EPA environmental engineer, and two other specialists from the
EPA Denver regional headquarters told The Times they were not consulted,
even though their territory included the country's richest coal bed methane
fields and some of the nation's most vulnerable water supplies.

 In his statement to the EPA inspector general and members of Congress,
Wilson said the study did not follow approved methodology, relied on a panel
of experts with conflicts of interest and failed to include any field
investigation.

 The report was based largely on a review of fracturing studies, reports of
water contamination and consultations with state regulatory officials. The
EPA decided against proceeding with a second phase of independent fieldwork.

 "This study was hijacked," Wilson said in an interview. The EPA's multiple
failures "may result in danger to public health and safety," he said.

 Wilson's statement said the study found that fracturing fluids often
contained hazardous chemicals. But because their patented formulas are
proprietary, all the potential compounds are not publicly identified, he
said. 

 "EPA cannot objectively nor scientifically defend its claim that this
practice does not risk endangering sources of underground drinking water,"
Wilson said in an interview. Agency officials said the chemicals were
diluted and dispersed enough to minimize the risk. And they said their
analysis of incident reports found no firm proof that fracturing had
directly caused drinking water contamination.

 "Unless we actually see threats to drinking water supplies, the Safe
Drinking Water Act admonishes EPA not to regulate injection for oil and gas
production unnecessarily," said EPA spokeswoman Bergman.

 The report did find that diesel fuel in fracturing fluid posed a risk to
drinking water. But EPA officials said no regulatory action was necessary,
because the three major fracturing companies voluntarily agreed to stop
using the fuel in coal bed methane operations. Wilson's statement says the
arrangement is inadequate, because the EPA has no way of enforcing it and
any of the parties can drop out at will.

 The EPA report was reviewed by a seven-person panel: a senior technical
advisor at Halliburton, a manager from an industry-funded research institute
who previously worked for Halliburton, a senior engineer with BP Amoco and
two academics who had worked for the energy industry. A sixth member, a
state regulator with an engineering background, also had worked for Amoco.
The final member was an expert on hydraulic fracturing from Sandia National
Laboratories in New Mexico.

 "EPA selected panel members who we believed would be unbiased and fair in
reviewing this study, and selected a representative group," the EPA's
Bergman said.

 One reviewer, Peter E. Clark, a professor at the University of Alabama who
specializes in hydraulic fracturing fluids and previously worked for the
industry, said the panel was fair. "Nobody tried to grind any axes."

 He said the original draft of the report reviewed by the panel overstated
the risks of fracturing and needed to be toned down. He said he requested
changes and that, in the end, "EPA made the right decision."

 The EPA's Bergman said the final report incorporated only changes suggested
by the panel "to make the study as scientifically accurate as possible."

 In addition to the peer review panel, the agency sought broad input through
public meetings and notices and consultation within the EPA, including the
Denver regional office, officials said.

 Cynthia C. Dougherty, director of the agency's groundwater and drinking
water office, said there was no political influence on the selection of the
peer review panel or preparation of the report. Halliburton's Hall said the
company did not recommend its employee for the panel and "had no expectation
of specific benefit" from his participation.

 The EPA report was a victory for Halliburton. Although only 1% of the
company's fracturing business is in coal bed methane fields, it is one of
the fastest-growing sources of gas production in the U.S. The study is seen
as a boost to industry's efforts to win a blanket exemption for fracturing.

 Rep. Henry A. Waxman (D-Los Angeles), a member of the House Energy and
Commerce Committee who has followed the fracturing study's progress, said
the EPA review "made a faith-based leap to conclude that injecting toxic
materials" underground posed little or no threat, he said. "The unanswered
questions in EPA's report cry out for further study."

 Geoffrey D. Thyne, a professor at the Colorado School of Mines who has done
consulting work for energy companies and local governments, said fracturing
is generally safe but needs to be monitored, particularly in areas where oil
and gas deposits are close to water supplies. Exempting fracturing from EPA
regulation "is premature, unwise and goes against the public interest," he
said.

 *


Times staff researchers Robin Cochran in Washington and Janet Lundblad in
Los Angeles contributed to this report.

(BEGIN TEXT OF INFOBOX)

 The fight over a drilling technique

 *

 When Dick Cheney led Halliburton Co. in the late 1990s, the firm opposed
Environmental Protection Agency regulation of hydraulic fracturing, a
technique that pumps pressurized fluid into the ground to boost oil and gas
production. Halliburton and two other companies dominate worldwide use of
the method. The administration of President Bush and Vice President Cheney
has taken steps to keep the practice of hydraulic fracturing from being
regulated by the EPA under federal drinking water

 laws.

 1995: Dick Cheney becomes chief executive of Halliburton Co., a leader in
fracturing.

 1997: Alabama residents win a ruling in U.S. appeals court that fracturing
should be regulated under the Safe Drinking Water Act.

 1999: Following up on its ruling, the U.S. appeals court orders the EPA to
oversee fracturing in Alabama.

 2000: Halliburton lobbies in Washington to exempt fracturing from
regulation under drinking water law.

 2001: Vice President Cheney convenes task force to devise a national energy
policy.

 2001: The EPA chief presses Cheney to scale back language recommending the
exemption of fracturing from a task force report. The exemption
recommendation is removed, but the report notes the benefits of fracturing.

 2003: Bush and Cheney back a sweeping energy bill that includes a provision
to exempt fracturing from EPA drinking water regulation.

 2004: An EPA study concludes that fracturing does not threaten drinking
water. 

 2004: An EPA environmental engineer seeks whistle-blower protection after
telling the agency inspector general and lawmakers that the EPA fracturing
study is scientifically unsound.

 *

 Sources: Federal court records, national energy policy report, EPA records,
interviews and news accounts




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