As new companies enter Alaska oil fields, violations spike

2015 was a record year for fines in Alaska’s oil and gas fields.

State regulators proposed some $1.7 million dollars in penalties against five companies — and the University of Alaska Fairbanks — for violating safety and environmental regulations.

Download Audio

One reason for the increase? More — and smaller — operators entering a state long dominated by a handful of major players.

The largest violator in recent years has been the company Hilcorp, which has revitalized gas production in Cook Inlet and expanded onto the North Slope — while racking up more than a million dollars in proposed fines.

On September 25, 2015, three contractors nearly died while working on a well at Hilcorp’s Milne Point Unit on the North Slope.

The three men were knocked unconscious when nitrogen filled the trailer where they were working.

All three recovered. But an investigation by the Alaska Oil and Gas Conservation Commission, which regulates the state’s wells, found that the incident “would have been fatal” if one of the workers hadn’t been lucky enough to collapse in the fresh air outside the trailer.

That conclusion was first reported this winter by the Alaska Dispatch News.

The Commission found that Hilcorp had violated state regulations at the site — and it wasn’t the first time.

In a letter, the Commission wrote, “the disregard for regulatory compliance is endemic to Hilcorp’s approach…and virtually assured the occurrence of the incident” that injured the three workers.

Regulators proposed a $720,000 fine, adding, “Hilcorp’s conduct is inexcusable.”

This spring, the Commission posted a list of all the penalties it’s imposed since 1976 – about thirty in all. More than a third of those were logged last year.

Cathy Foerster is one of the agency’s two commissioners. (A third commissioner’s seat has been open for more than a year.)

Foerster said that’s in part because of more enforcement. But it’s also been driven by a shift in Alaska’s oil fields, as newer companies have entered the state.

“As we get in smaller operators and new operators that aren’t familiar with Alaska regulations, we’ve had some operators who’ve used the ‘learn as you go’ approach to regulatory compliance, which I frown upon,” Foerster said.

Foerster was quick to add that not all smaller operators have trouble following the rules.

And the largest penalty ever recorded wasn’t for a small company at all – it was a $1.27 million dollar fine against BP, which operates the state’s largest oil field, Prudhoe Bay, for an explosion and fire that injured a worker in 2002.

But of the 11 fines proposed last year, 10 were for smaller companies.

Larry Persily is an oil and gas advisor to the Kenai Peninsula Borough. He said it may be too early to call it a trend; but if it continues, it’s not unique to Alaska.

“Looking around the country, smaller operators, which is what we’re seeing more of in Alaska…smaller operators tend to get cited on compliance issues more than the major oil and gas producers,” Persily said.

Persily says smaller companies may not have the resources, the expertise, the staff — or the emphasis on following the rules.

Most fines aren’t for incidents that cause environmental damage or injure workers. Reading through the list of penalties can feel like going through a stack of parking tickets: citations for failing to provide reports, or failing to test or install the right equipment.

But, Persily said, that’s exactly what the Commission should be focused on.

“Even if a violation doesn’t seem like a big deal, it’s a big deal because the risk of not complying, the risks are so big: pollution, environmental damage, worker safety,” Persily said. “It’s good governance on the part of the state and the industry to have zero tolerance for any errors, any violations, because [if] things go bad, they really go bad.”

That appears to be the Commission’s concern about Hilcorp, which accounted for 6 of the 11 penalties proposed last year.

Since entering Alaska in 2011, Hilcorp has taken over fields from bigger players in Cook Inlet and the North Slope, becoming a significant oil producer and the Inlet’s largest natural gas producer. It’s currently applying for permits for its Liberty project, which would take place in shallow water in the Beaufort Sea.

In the process, it has been hit with $1.2 million in proposed penalties.

Foerster wouldn’t comment on specific incidents, because most of those fines are still being appealed. But she said she stands by the Commission’s written statements.

“In their early time, we didn’t send out any notices of violation or notices of enforcement,” Foerster said. “Instead we chose to educate them. But you can only be the new kid on the block for so long before you start having to be responsible for your behavior.”

Representatives from Hilcorp declined to be interviewed.

In an emailed statement, David Wilkins, Hilcorp Alaska’s Senior Vice President, wrote, “…we take regulatory compliance issues seriously. We are working to improve communications and understanding with all of our regulators including the AOGCC [Alaska Oil and Gas Conservation Commission].”

Foerster said her team believes Hilcorp is serious about changing how it operates going forward.

And, she said, the solutions are pretty simple. Above all, she said, companies must make it clear to their employees that following the rules is non-negotiable.

“Regulatory compliance isn’t that difficult,” Foerster said. “You have to prioritize it, you have to incentivize it, and you have to equip for it.”