Source: http://www.csindy.com, January 26, 2012
By: Pam Zubeck
On a brisk morning in mid-October, El Paso County Commissioner Dennis Hisey and two county staffers took a trip.
They joined an Ultra Resources engineer, geologist and land manager on a private jet bound for the Pinedale Anticline, an 80-square-mile area in southwest Wyoming that’s rich with natural gas deposits.
They were retracing the flight path made the previous week by Commissioner Amy Lathen, Senior Assistant County Attorney George Monsson and development services project manager Craig Dossey.
Their goal, Hisey says, was to learn more about the operations of a company that plans to drill on the eastern edge of Colorado Springs and farther east in the county in the potentially prolific Niobrara Shale formation.
After the jet touched down in Wyoming, Hisey and the others were shuttled to a rig site on Bureau of Land Management land.
“It’s absolutely arid and barren. A few antelope out there,” Hisey says. “It’s as barren as anything you would see in eastern El Paso County.”
They watched workers add a section of pipe to a drill rig. They saw how Ultra deals with mud that comes back up from underground. They also observed disposal of spent drilling fluids into tanks and, ultimately, 14,000 feet underground.
“From my standpoint, I needed to do all the research I could based on the potential impact and e-mails I was getting,” Hisey says. “I had never seen a drilling rig before. I needed to know more before I started voting on regulations.”
Piping hot fajitas came via caterer to the drilling site. But neither over lunch, nor at any other time, did Hisey inquire about Ultra’s environmental record. “I didn’t ask them, ‘What kind of fines have you paid in the last 10 years?” he says. “I didn’t say, ‘Is EPA investigating you?'”
The Environmental Protection Agency isn’t, because the Clean Water Act doesn’t apply to the controversial practice of hydraulic fracturing used by Ultra and others. Commonly called fracking, the drilling method uses chemicals, sand and water to break open underlying deposits.
Still, Ultra’s folks might have mentioned the stack of state environmental and drilling violations from both states where it mines natural gas: Wyoming and Pennsylvania.
Between the two states, the company has been hit with more than 200 violations in the past five years. It’s paid fines totaling $231,500 for 35 environmental and operational infractions dealing with wells, air quality and pollution of wetlands. And it’s been forced to install a $25 million system to reduce its chances of polluting Wyoming’s air again.
The company also faces a separate lawsuit over air pollution; has had permits revoked for erosion and sedimentation control due to “numerous technical deficiencies”; and was listed as failing to meet production reporting deadlines. Ultra’s record in Pennsylvania led one analyst to label its compliance record “not very impressive.”
So Hisey missed out on all that. But he says he still came to see what’s at stake as he strode over Wyoming’s arid ground.
“It made me realize what the important stuff was in terms of regulations,” he says. “We have absolutely got to protect our groundwater from surface contamination as much as possible. I say as much as possible … nothing is absolute. And we’ve got to take care of our roads, because the traffic for brief periods of time is horrendous. I want to make sure our sites are reclaimed [returned to pre-drilling condition], and I saw they can do it.”
Not that Hisey knew much about Ultra before his free trip. “I knew they were based out of Houston and they were publicly traded,” he says, “and that’s the extent of what I knew about them.”
About the company
Hisey and his fellow commissioners will meet Tuesday, Jan. 31, to discuss the county’s proposed regulations. The state Attorney General’s office claims they conflict with state rules, and Ultra calls them “unduly onerous.” Commission Chair Amy Lathen said in a letter to an area newspaper the board doesn’t support the rules as proposed but will try to “strike that balance” between citizen and industry concerns. It’s unclear if the commission will adopt the rules on Tuesday.
Meantime, Colorado Springs is sparring with Ultra over 18,000 acres of Banning Lewis Ranch land that it bought out of bankruptcy for $20 million last year. Ultra wants the annexation agreement set aside and the land rezoned to agriculture, which would relieve it of costs associated with residential and commercial development, such as building roads and fire stations. A city oil and gas committee meets Thursday, Jan. 26, to begin writing its own drilling regulations before a City Council-imposed moratorium expires May 31.
While a few select government officials have interacted with the company that has triggered all this maneuvering, Ultra has mostly flown below the radar.
But Ultra Petroleum Corp., which owns subsidiary Ultra Resources, is a well-known player in the oil and gas business. Incorporated in Canada, headquartered in Houston, and traded on the New York Stock Exchange under the symbol “UPL,” Ultra reported its total assets as $3.6 billion in 2010. That’s small compared with industry leaders such as Anadarko Petroleum Corp. ($51.5 billion) or Chesapeake Energy ($37.2 billion), but still substantial.
And it’s reflective of the exponential growth the 33-year-old company has enjoyed under president, board chairman and CEO Michael Watford. Since taking the reins in 1999, Watford has expanded Ultra’s market value from $50 million to more than $8 billion, according to Securities and Exchange Commission reports.
The company started trading on the NYSE in 2007, the same year the Wall Street Journal named the firm to its “Best Performers List” due to its five-year average stock return of over 70 percent. Ultra is known as a low-cost producer, meaning it can withstand dips in the market because its production costs are low enough to ride out price fluctuations. But last week, Ultra’s stock hit a 52-week low, leading TheStreet Ratings to rate Ultra as a “hold,” meaning don’t buy or sell, noting “robust revenue growth, expanding profit margins and good cash flow from operations,” but also “deteriorating net income, generally poor debt management and disappointing return on equity.”
Watford is the largest individual shareholder of stock, with 2.6 percent of the company’s shares. In October, Forbes ranked him 10th among America’s 25 Highest-Paid CEOs; his $43.7 million compensation tops that of the CEOs of JPMorgan Chase and Goldman Sachs.
He was voted vice chairman of the Independent Petroleum Association of America last year and is a member of the National Petroleum Council, an oil and natural gas advisory committee to the Secretary of Energy. He contributed $49,500 to Republican presidential and congressional candidates and committees from 2007 through 2011, and another $11,000 to energy political action committees, such as the Independent Petroleum Association and America’s Natural Gas Alliance, opensecrets.org reports. Ultra contributed $1,525 to energy industry PACs in Colorado last year.
During a conference call in November to discuss third-quarter earnings, Watford was asked what Ultra is looking for in the Niobrara field in Colorado.
“We’ll look at anything that makes money,” Watford said, according to a transcript provided by seekingalpha.com. “The stuff we’re focused on right now happens to be oily, but if we see good gas opportunity, we’re going to evaluate it.”
In a recent corporate presentation Ultra provided to the Indy, the company forecasts up to 400,000 barrels of oil per well in the Niobrara formation. It doesn’t say how many wells it plans to drill, but notes the company plans to “continue acquiring acreage.”
Pursuing oil would be a shift for Ultra, which now focuses on natural gas. Its most profitable stake is 56,000 acres of the Green River Basin in southwest Wyoming, which includes federal land. Those operations, which include roughly 900 wells, started more than a decade ago and have intensified as state regulators in recent years have allowed for greater density of drilling — letting Ultra drill more wells on fewer acres, as few as five acres per well.
Ultra also has control of approximately 250,000 acres in the Appalachian Basin in Pennsylvania, according to its website.
According to the El Paso County Assessor’s Office, roughly 2,500 oil and gas leases have been filed in El Paso County within the past four years. Ultra is believed to hold a good number of them — completely separate from its Banning Lewis property, which comprises about 15 percent of the city’s land area. But it’s hard to say how many leases Ultra actually has, notes county assessor Mark Lowderman, because “it’s a very clandestine industry.”
He says his office, which is charged with filing the leases and valuing their worth for tax purposes, has had “very little interaction” so far with Ultra, the city’s largest private landowner.
To the east
In Pennsylvania, Ultra has 332 well permits but has drilled only 57, according to the state Department of Environmental Protection. Some are located in the controversial and productive Marcellus Shale, which geology.com reports might hold more than 500 trillion cubic feet of natural gas — enough to supply the United States for two years. It underlies most of the state, as well as West Virginia, eastern Ohio and the lower half of New York.
The shale has made headlines for several years, with residents complaining of contaminated domestic water wells, flammable water pouring from taps, and polluted streams and rivers, which they blame on fracking. New York imposed a drilling moratorium three years ago and soon will decide whether to lift it. But when the EPA in December reported that fracking chemicals likely contaminated groundwater in a Wyoming test well — marking the first time that fracturing was scientifically linked to domestic water-well pollution — it gave those claims a new level of weight.
Ultra has stepped up its holdings in Pennsylvania since 2008, and as its acreage has increased, so has its number of compliance violations, according to the DEP. Each year has brought more violations than the last, even in 2011 when Ultra drilled only two wells there.
In written responses to questions from the Indy, Ultra explains its environmental record in both Pennsylvania and Wyoming this way: “Similar to all businesses, the oil and gas industry does not operate in a risk-free environment. Ultra works diligently to operate within regulatory boundaries. If we are found to be out of compliance we will act quickly and collaboratively to implement a solution to mitigate our impact and restore compliance.”
In the past three years, Ultra has been cited with 152 violations and received 35 enforcement actions. Violations included “improperly lined impoundments, lack pollution containing measures for polluting substances,” and “no E&S [erosion and sediment control] plan available on site.”
In 2010, inspectors fined Ultra $5,194 after its drilling mud seeped into a wetland, and $10,000 for operating without a permit or waiver in another instance. Other citations noted “discharge of pollultional [sic] material to waters of Commonwealth,” and “failure to stabilize earth disturbance in special protection watershed.”
Many of the violations are still pending.
One analysis shows Ultra received one citation for every four inspections — twice the area average — of its wells in the Marcellus Shale. It was done by Matt Kelso, data manager at the University of Pittsburgh who also manages data for fractracker.org, a website launched by the university and other nonprofit partners to track and map industry impacts in the Marcellus Shale. Ultra’s score placed it among the worst 14 of 60 drillers.
Over a four-year period, Ultra’s compliance record of violations per well in the Marcellus Shale ranked among the worst 20 percent, Kelso found. “That score is not very impressive — and clearly moving in the wrong direction,” he says.
In 2009, the DEP revoked Ultra’s erosion and sedimentation control permit for four sites due to “numerous technical deficiencies.” In 2010, Ultra was among 41 of 74 oil and gas drillers working the Marcellus Shale that failed to meet a production reporting deadline.
Ultra also is being sued by Citizens for Pennsylvania’s Future (PennFuture), a nonprofit environmental activist group, for allegedly violating the Clean Air Act in the Marshlands Play area in Tioga and Potter counties. PennFuture alleges Ultra didn’t get all the necessary permits and that the company’s facilities are emitting an illegal level of nitrogen oxides, which combine with other elements to form ozone.
Ultra has filed a motion to dismiss; a decision is pending.
Last March, the New York Times reported that Ultra had sent more than 155,000 gallons of drilling wastewater to nine towns for dust suppression in 2009. “The water came from two gas wells in Tioga County and contained radium at almost 700 times the levels allowed in drinking water,” the Times reported. Radium is a cancer-causing element found in underground uranium deposits, and which decays into radon gas.
Back out west
In southwest Wyoming, according to Ultra’s website, the company is working the Jonah and Pinedale natural gas fields of the Greater Green River Basin, which were among the Top 10 natural gas plays in the nation in 2008 based on proved reserves.
In 2007, the Wyoming Oil and Gas Conservation Commission fined Ultra $16,500 for 33 violations of laws requiring gas companies to notify authorities before they begin pumping, or spudding, a well. But Tom Doll, the state oil and gas supervisor, says Ultra is in good standing with the state and has a “good” record.
“We had a change in our rules, so there was some confusion for all operators,” Doll says, adding companies didn’t understand they had to report the start of pumping operations of wells on federal land, as well as those on state or private land.
Doll says Ultra has been professional and cooperative in responding to requests for data and on compliance issues. “I really don’t have anything that I would have a concern for,” he says.
Ultra’s comments to the Independent note the company has received several awards for its efforts to protect the environment here. Along with other Pinedale Anticline operators, it received a “Best Practices” award in 2009 from the Bureau of Land Management in recognition of “leadership and creativity in reducing the impacts of developing natural gas, crude oil, and geothermal resources on public lands”; Ultra was singled out for its plans to cut emissions. The state has honored Ultra for helping to enhance wildlife habitat, and the EPA has given the firm an “Environmental Achievement Award” for protecting air quality in Wyoming, Ultra says.
But the Wyoming Department of Environmental Quality hasn’t always been so complimentary.
In May 2009, Ultra agreed to pay $200,000 to settle eight air pollution complaints involving more than 100 wells dating to 2000, although it did so “without admitting any of the facts alleged … and without admitting any liability or failure to comply.”
The settlement stemmed from the state’s allegations that Ultra had discharged hazardous emissions from its production facilities and failed to install the equipment needed to handle the emissions.
In addition to paying the fine, Ultra was ordered to install $25 million worth of environmental equipment to prevent future pollution. And to assure Ultra complied, the state required the firm to pay $105,417 for each month it was late in completing the installation. There’s no record showing that Ultra missed the deadline. Lastly, the state required Ultra to pay $116,250 to the University of Wyoming Environmental Engineering Internship.
Since then, Ultra has racked up 10 more air quality compliance violations, which are pending.
In 2007 and 2008, Ultra placed five of its groundwater supply wells into the state’s Voluntary Remediation Program after tests by the Bureau of Land Management found higher-than-allowed levels of benzene, a fluid commonly used in fracking that can cause anemia or an increased risk of cancer.
Ultra isn’t alone with problem water wells in the Pinedale area. Nonprofit news agency ProPublica reported the following in a November 2008 article published in Scientific American: “In September the Bureau of Land Management approved plans for 4,400 new wells in Sublette County, despite the unresolved water issues. Tests there showed contamination in 88 of the 220 wells examined, and the plume stretched over 28 miles. When researchers returned to take more samples they couldn’t even open the water wells; monitors showed they contained so much flammable gas that they were likely to explode.”
In the community
Ultra has a satellite office in Wellsboro, Pa., a town of 3,500, but keeps a low profile most of the time, according to phone interviews with people who live there. Though it’s been drilling wells since 2008, Ultra hasn’t joined the local Chamber of Commerce, says chamber executive director Julie VanNess.
VanNess says she’s always hoping for donations to cover the weeklong Pennsylvania State Laurel Festival, especially the parade, which costs $23,000 alone. “I know that our offices have not received anything from [Ultra],” she says. “I have not had any personal contact with Ultra. I’ve worked with other companies that have been extremely helpful and community-minded.”
One company sponsored a new emergency room project at the local hospital, she says, while another sponsored a children’s festival and another helped with a project to control major truck traffic in the downtown historic district.
But Ultra is listed as a corporate sponsor for the 2011 Endless Mountain Music Festival, and is a member of the Marcellus Shale Coalition, along with more than 40 other gas drillers, which participates in community events, such as the annual state Farm Show. The alliance pledges on its website to “protect the environment.”
In March 2010, the Wellsboro Gazette reported that residents along Route 3001, in the vicinity of where Ultra has drilling rigs, were irate about the road’s condition; 27 residents showed up at a press briefing to complain about highway officials and Ultra Resources. For three days the previous week, residents had been “stranded at home due to the fact they could not travel the road,” the newspaper reported.
“It did fall apart and was in rough shape,” says Tioga County Planner Jim Weaver. He says Ultra hired “a couple of reputable local consultants” to manage the road’s upgrade in October 2010, which added a depth of asphalt to make the road more durable.
Weaver says counties and municipalities have learned to require gas companies to post bonds so damaged roads get fixed.
Longtime Tioga County Commissioner Erick Coolidge, who had 700 acres under lease to Ultra for a time, says the Ultra employee he’s had dealings with was “honest and fair,” and that he’s found Ultra to be “as accommodating and as responsible as others have been.”
But pressed on Ultra’s adherence to county regulations, he says, “You’ve got to sit on them.”
Weaver elaborates. “My experience has been limited, because they don’t have a public face,” he says. “I am still having trouble in having Ultra participate, to comply with our subdivision and land ordinances with compressor stations.”
When Ultra has submitted paperwork, it’s been “sloppy and haphazard,” he says.
“I’ve had pretty decent compliance with the larger companies,” he adds. “Smaller companies have been hesitant. Ultra was the last company we’ve been able to get to come under compliance.”
He says his dealings with Ultra have involved two short exchanges with its environmental employee in Wellsboro and repeated, difficult dealings with “an old guy who had a stroke, and walks with a cane.”
“He’s the main guy,” Weaver says. “He has a lot of trouble communicating. It’s almost by design they’ve handed this guy the job to shepherd these things through.”
In Wyoming it’s a different story; Ultra is ultra-involved. It’s a member of the Sublette County Chamber of Commerce, and helped sponsor the chamber’s annual Community Clean-Up Day.
It’s helped fund a flu clinic and a banquet, and entered a Christmas wreath (nature-and-wildlife-themed) in a contest to benefit a local museum.
Ultra is a sponsor of the Wyoming Land Trust, which works with private landowners to conserve Wyoming’s natural and agricultural resources; the Sublette County Conservation District, which provides for development and protection of soil and water resources; and the Wyoming Hunting and Fishing Heritage expo.
With all this environmental concern, you’d think Ultra might opt for transparency in reporting any liability associated with its fracking operations. And yet Michael Passoff, senior strategist of San-Francisco-based As You Sow, an agency that promotes socially responsible investing, says Ultra has resisted a shareholder resolution calling for just that.
“There’s a few companies that have really become noticeable for lack of transparency to shareholders, and Ultra is one of those,” he says.
Other oil companies have voluntarily adopted the resolution; Ultra won’t allow shareholders to speak on the issue at meetings.
“No one’s saying, ‘Don’t frack.’ The issue is, we’re concerned it’s not being done properly,” Passoff explains. “We just want to reduce financial risk, which means that fracking has to be done in a way that does not harm human health or the environment.”
Two years ago, As You Sow’s resolution got 21 percent of the shareholder votes. Last year, it got 42 percent. That in mind, Ultra’s resistance shows an “anti-shareholder mentality,” he says. “It’s a helluva message to send to your shareholders.”
In its e-mail to the Indy, Ultra claims it works with fracfocus.org to voluntarily disclose fracking ingredients, though the site has no listing for Ultra’s wells in Tioga and Potter counties. The company also asserts that some of the hubbub over fracking might stem from “unconventional natural gas and oil plays” that have triggered drilling in “relatively new areas … where local communities may not be as familiar with the processes and technology used.”
What about here?
Ultra has dropped into town for private meetings with Mayor Steve Bach and other city and county officials. The company officially opposes the county’s proposed regulations, which it has labeled “onerous” and “unenforceable,” because it says the rules conflict with Colorado Oil and Gas Conservation Commission standards.
The Attorney General’s Office agrees, saying in a Jan. 10 letter to the county that the proposed rules are at odds with the state’s regulations in several areas, including water quality, wildlife impact, noise, lighting and visual impact.
Having reviewed the letter and the county’s plans, Hisey acknowledges that “it appears some of our proposed regs do pose a conflict, and if challenged we could expect to lose in court.”
In one letter, Ultra sounds quite up for a legal challenge. In a Nov. 28 missive to the county, the company argues that county regulations might prevent Ultra from accessing mineral rights for which it has spent millions of dollars, creating a de facto condemnation of private property. “A regulatory regime that effectively precludes a mineral owner from developing its minerals would constitute a taking,” the letter states.
Hisey says he feels more prepared to vote on the regulations after his trip to Wyoming.
“I was pleased to see that their drilling site in the middle of nowhere is clean and they — I’m assuming all oil companies work together on this — they do dust control, and there’s no trash blowing,” he says. “That’s the part that probably struck me more than anything. I was pleased their drilling site in the middle of nowhere is clean.”
It’s an odd comment, considering Hisey last month told the Indy that locals who wrote about drilling rigs during the county’s public-comment process “figured out the part you see is not the most important part.”
Regardless, Hisey wishes all five commissioners could have made the trip. “I think they would understand the impact of our regulations better if they saw what it looks like during the drilling, what it looks like when the drill rig is gone.”
For the record, Hisey says he consulted the County Attorney’s Office before accepting Ultra’s offer to fly him to Wyoming: “I was encouraged to go because of the magnitude of what we’re dealing with.” County spokesman Dave Rose confirms the county didn’t reimburse Ultra, noting, “It was a regularly scheduled run, so they just hitched on.”
For Ultra, the trip was just part of doing business. “Ultra regularly hosts state and federal regulators, elected officials, members of the press, investors, business owners, school children and the interested public on tours of our operations in Wyoming,” it says via e-mail.
The Code of Ethics and Business Conduct posted on Ultra’s website says to “see below for a discussion of gifts to government representatives,” but there is no such section in the ethics code posted there.