Two advocacy groups are questioning the legality of the state's new program that funnels federal coronavirus aid to oil companies to reimburse part of the cost of fracking wells.
The Dakota Resource Council and North Dakotans for Public Integrity sent a letter Tuesday to both the state Industrial Commission and the Emergency Commission regarding the use of $16 million in CARES Act funds for the program. They allege the state is violating the North Dakota Constitution’s “anti-gift” clause by giving the money to oil companies.
The groups say the Industrial Commission “lacks statutory authority to give these types of gifts to oil and gas operators.”
Gov. Doug Burgum took issue with that characterization at Tuesday’s Industrial Commission meeting, saying he rejects “vehemently that these were gifts.”
“It’s interesting they are applying these arguments to one industry and not to all the rest,” he said, adding that the federal government directed trillions of dollars in pandemic relief to health care, education, retailers, hospitality and small businesses. “It seems to me this is an attack on one industry.”
The groups' letter goes on to request a number of records, including the names of the businesses that receive the grant money and records related to the state’s decision to establish the program.
The organizations say they cannot find any information about where the funds went on state agency websites. The North Dakota Oil and Gas Division did not return a phone call from the groups’ lawyer seeking the information, according to the letter.
“The combination of what appears to be an unlawful use of emergency CARES Act funds to provide significant gifts to oil and gas companies during a public health and economic emergency, combined with this lack of transparency, is untenable,” wrote JJ England, the attorney for the groups.
The Oil and Gas Division, an arm of the Industrial Commission, is administering the program. The money stems from the $1.25 billion North Dakota received through the CARES Act's Coronavirus Relief Fund. It must be spent by the end of 2020.
State Mineral Resources Director Lynn Helms said at the Industrial Commission meeting that the division would respond to the records request within a few days and provide the information asked for by the groups.
The program targets wells that were drilled but never fracked due to poor economics when the price of oil collapsed earlier this year amid the pandemic. Fracking involves injecting water, sand and chemicals down a well at a high pressure to crack the rock and release oil.
Oil companies are eligible for grants up to $200,000 per well completed under the program to reimburse the cost of water acquisition and disposal. State leaders bill the effort as a way to keep workers employed during the downturn and as a means to stabilize oil production so the state does not take a significant tax revenue hit in the near future.
Helms said the money has already been designated for 80 wells, putting four additional frack crews to work. The crews consist of 100 people moving site to site to bring wells online. Another 100 support jobs tend to follow each crew, for a total of about 800 jobs sustained through the program, Helms said.
The program aims to do “something constructive and productive,” Burgum said.
Burgum chairs both the Industrial Commission and the Emergency Commission, which first approved the program. The legislative Budget Section, made up of 43 state lawmakers, gave final approval in October with a vote of 33-5.
The $16 million used for the grants originally was designated for another program that was allocated $66 million in CARES Act money for plugging and cleaning up abandoned wells in the oil fields. Regulators said they would not be able to spend the entire $66 million by the end of the year, so they returned some of the money and asked that it go toward the fracking grants.
The advocacy organizations call the fracking grant program “a legally risky use of CARES Act funds because it appears unlikely that these funds ‘are necessary expenditures incurred due to the public health emergency' as required by the CARES Act."
The groups say their goal is to “open a dialogue” with the state “to ensure that these funds are lawfully spent and that proper oversight is put in place regarding the use and expenditure of these funds.”
They also sent a copy of their letter to the inspector general of the U.S. Department of Treasury, who retains oversight of CARES Act dollars.
Helms said the state “carefully vetted” the program to make sure it complies with the requirements of the CARES Act.
Reach Amy R. Sisk at 701-250-8252 or email@example.com.