Time To Send Denbury Packing?

Salt water is in the news this week.

You read in the papers this morning that a company called Denbury Onshore, a subsidiary of Denbury Resources of Plano, Texas, which is in the oil business in the Bakken in both Montana and North Dakota, “released” about 700,000 gallons of salt water into Big Gumbo Creek in eastern Montana. “Released” is the North Dakota Health Department’s new term for “spill.” Big Gumbo Creek runs into the Little Missouri River after it crosses the North Dakota line into Bowman County. The Little Missouri is classified as a North Dakota State Scenic River, and it eventually flows into Lake Sakakawea north of Killdeer. For now, everyone is saying they got the water stopped before it got to the Little Mo. I’m going to drive down there as soon as I can to take a look for myself.

At the same time salt water was flowing down Big Gumbo Creek, a judge in Dickinson was signing a court order demanding that a company named Halek Operating ND, LLC, pay a fine of $1.5 million to the state of North Dakota for illegally pumping hundreds of thousands of gallons of salt water down a well in Stark County, south of Dickinson. I’ve written about Halek before. A number of times. Almost more times than I can count. I am an English major, after all.

As I’ve said before, the North Dakota Industrial Commission, with great fanfare, stating “this is the most egregious violations ever pursued by the Commission,” slapped a fine of $1.5 million on the company last summer. Gave them 30 days to pay. They didn’t pay. The Industrial Commission went to court, and last Friday got a court order from Judge Dann Greenwood out in Dickinson to be served on them, to make them pay.  That’s where it stands right now. No check in the mail yet.

People who understand this situation better than I do tell me there isn’t going to be a check. They say this was a great headline-making story, making the Commission look really tough on a bad operator, but that Commission members knew all along they were never going to collect this fine. Because there isn’t anything there to collect. By now, what my friends in the know tell me, there are virtually no assets left in the Halek Operating ND LLC account, except maybe an abandoned well full of salt water. And there may not even be that. Halek’s owner, Jason Halek, says he sold the well to another company during the time the illegal dumping was going on. Presumably, Jason Halek didn’t leave a lot of cash sitting in a bank account under the LLC’s name, but that is what the Industrial commission has to try to find out right now. Because the Industrial Commission levied the fine against the LLC, not Jason Halek personally, so if there are no assets left in the LLC, then the Industrial Commission is SOL.

I’m not a lawyer, but it seems that perhaps, with the knowledge that there might not be any assets in the LLC, the Commission might have tried to “pierce the corporate veil,” in legal terms, and go after Jason Halek personally.  But even that might not have done any good, since Jason Halek is on the hook for about $26 million to the Securities and Exchange Commission for a big securities fraud case a couple years ago. In that case, the SEC was able to get around the corporate veil of Halek Operating LLC and get to Jason Halek personally. The case is on appeal. But if the North Dakota Industrial Commission had gone after Jason Halek personally, at least they’d be in line, if there is any money anywhere to be doled out.

The headlines were very big in the state’s newspapers when Dalrymple and Company, LLC (Liability Limiting Commission), slapped the $1.5 million fine on Halek. I hope they are just as big when they report it is uncollectable.

But meanwhile, back at Big Gumbo Creek. Here, the offending company, Denbury Onshore LLC (notice how all these companies are LLC’s—Limited Liability Corporations? Could you find a more appropriately named business structure than that for these guys?) seems to be an even worse player than Halek Operating. Denbury has run afoul of the law so many times that they maintain a full legal department of their own, and those boys and girls have been busy lately. They’re no strangers to the inside of a hearing room.

In the last two years, the company has paid more than $50,000 in fines for three separate violations of the Federal Clean Water Act, all for oil spills that ran into rivers and creeks in Texas. Earlier this year, the company agreed to pay a $662,500 fine to the Mississippi Department of Environmental Quality over a 2011 oil well blowout, one of the largest environmental fines Mississippi has assessed in the last 10 years. Mississippi shouldn’t have trouble collecting that—the company appears to be pretty cash rich right now. In late 2012, the company sold much of its Bakken assets in North Dakota and Montana to Exxon Mobil for $1.6 billion. That’s Billion, with a B.

The 2011 Mississippi blowout wasn’t the company’s first. In fact, it was the third blowout in Mississippi since 2007. They also had one near Killdeer, in North Dakota, in September of 2010, spilling 2,400 barrels of oil and salt water. And their most recent spill was back in June of this year, along the Gulf Coast in Louisiana, where Denbury is still cleaning up after a major spill (they still call them “spills” in Louisiana). The company estimates it is going to spend $98 million to get that fixed. Must have been a bad one.

Earlier this year, 30 homes at Denham Springs, LA, just down the road, had to be evacuated when two Denbury oil storage tanks caught fire on May 2.

But it appears that all these catastrophes are just part of normal business operations for Denbury. Earlier this month, the Dallas Morning News reported that the company’s third quarter revenues set a new record for the company, taking in $674 million. The paper also reported:

The record quarter came despite a falloff in oil production from last quarter as the company shut down part of one of its Louisiana fields to try and address carbon dioxide leaks.

            Unlike most oil companies that drill for oil, Denbury pumps carbon dioxide into previously tapped oil fields to bring crude to the surface. Since 2007 the company has experienced a series of carbon dioxide leaks through abandoned wells in Mississippi and Louisiana. Earlier this year Denbury agreed to pay a $662,500 fine to the Mississippi Department of Environmental Quality.

            “Our remediation efforts at Delhi Field are progressing well and we have resumed carbon dioxide injections into areas surrounding the impacted area,” Denbury CEO Phil Rykhoek said in a statement. “We continue to expect company-wide production to resume its sequential growth in the fourth quarter.”

            Even with the slowdown in Lousiana, Denbury reported a $102 million profit in the third quarter, a 20 percent increase from a year ago.

Well, a $102 million profit in just three months. Not bad. We shouldn’t have any problem collecting a pretty big fine from them over this spill in Bowman County.

I learned all of this in about 20 minutes this morning by just Googling Denbury Resources. And I only went to page 2 of the Google list before deciding that was enough—it was getting really depressing reading this stuff.

I don’t quite know what to make of all this. These Denbury guys are obviously bad actors. I’d say maybe it is time the Industrial Commission has its enforcement people over at Lynn Helms’ office (yeah, right) haul these Denbury boys in and have a talk with them. Obviously it’s going to take some time and money to clean up 700,000 gallons of salt water. The Dickinson Press story this morning said this:

Dean Pearson, Bowman County emergency manager, said the creek eventually runs into the Little Missouri River. The cleanup effort will include tests between where the spill stopped and where it goes into the river to make sure the saltwater isn’t traveling that way, Pearson said.

            “Oil is easy to clean up,” Pearson said. “This is tough. It sometimes kills grass for years to come after if it’s not cleaned up properly. It’s actually more of a concern, environmentally, than oil is.”

While that is going on, Helms’ staff should be deciding whether they even want this company operating here any more. They are just another disaster waiting to happen. During the hearing on which the Industrial Commission levied the $1.5 million fine against Halek earlier this year, the Commission chairman, Jack Dalrymple, said “There will not be any exceptions or leniency when these things happen.”

Well, Jack, maybe it’s time to send another message to the industry.  A real message. A really strong message. A message that leaves no mistake about whether we are serious about protecting our state.  Jason Halek has gone back to Texas, never to be seen in North Dakota again. Maybe it’s time to just tell Denbury to clean up its mess and get the hell out of here too. I’d vote for that.