GILLETTE - State regulators are investigating what they believe to be a rogue attempt to hide an illegal water discharge by a coal-bed methane operator in the Powder River Basin.

A suspicious rancher in the Spotted Creek area recently discovered what appeared to be an underground water pipeline deliberately directed into a roadway culvert, hidden well out of view of passersby.

"It's a serious situation. It appears somebody was trying to hide the fact that they had a discharge that was not permitted," said John Wagner, administrator of the Wyoming Department of Environmental Quality's Water Quality Division.

Wagner said DEQ is seeking legal action against Lance Oil & Gas Co., a wholly owned subsidiary of Western Gas Resources. Krista Johnson, a spokeswoman for Western Gas, said the company has launched its own investigation into the incident.

It's not the first time Lance Oil & Gas has broken the rules. The company was assessed $72,000 in penalties in 2004 and 2005 for six illegal discharges in the coal-bed methane fields, according to DEQ records.

Despite the company's history of violations, and the ongoing investigation into the most recent allegation against Lance, DEQ officials said they will continue to process water discharge permits for the company.

"If (the water discharge applications are) legal and in good shape, we will process those applications normally," Wagner said.

Wagner insists that violations in the coal-bed methane industry are rare and are usually the result of honest oversight. Others, however, say the state's regulatory agencies lack the will to enforce environmental rules or levy stiff penalties against violators.

Jill Morrison of the Powder River Basin Resource Council said paying an occasional penalty for an illegal discharge is not a deterrent, but simply an accepted cost of doing business for some operators.

"Industry just laughs at this state, because we have no real enforcement. It's just not taken seriously," Morrison said.

Unlike its Surface Mining Act authority over Wyoming's mining industry, DEQ typically cannot levy a penalty or cease-and-desist order on the spot when it discovers an egregious violation in the oil and gas industry. Wagner said Wyoming lawmakers could make a statutory change to give DEQ those powers, but he's not asking for it.

"We've never asked for administrative penalty authority. The vast majority of our situations are ones where there are not immediate threats to human health," Wagner said.

Wyoming DEQ has assessed some $356,300 in penalties during the past two years for various violations in the coal-bed methane industry.

'More responsive'

Last year, Wyoming lawmakers increased several penalties for the oil and gas industry. The state engineer's office was given the authority to impose a $1,250-per-day non-administrative penalty for unpermitted coal-bed methane water reservoirs - an action prompted by the discovery of 75 illegal reservoirs in the Powder River Basin.

Deputy State Engineer Harry LaBonde said the stiffer penalty seems to have fostered better cooperation from violators.

He noted that all 75 illegal reservoir cases were resolved administratively without going to court. That means no penalties were assessed in the case.

Last year lawmakers also gave the Wyoming Oil and Gas Conservation Commission authority to increase its $500-per-day penalty to $5,000 per day, and increase its $1,000-per-day penalty to $10,000 per day.

"Maybe it's had some effect," said Don Likwartz, commission supervisor. "In most cases, we have not fined people more than $500 per occurrence."

In 2005, the commission assessed 10 penalties across the entire oil and gas industry in Wyoming, averaging more than $4,000 per penalty. In 2004, the agency assessed eight penalties for an average $11,000, though a $64,500 penalty was never collected because the company that was penalized went bankrupt.

In 2003, the commission assessed two penalties for an average of $3,000.

NewsTracker

* Last we knew: Last year, Wyoming lawmakers raised penalties for environmental violations in the oil and gas industry and increased regulatory staff.

* The latest: Regulators continue to investigate serious violations in the industry and are under criticism for being too lenient.

* What's next: State regulators will inspect operations and seek corrective actions and penalties for violations.

Energy reporter Dustin Bleizeffer can be reached at (307) 682-3388 or dustin.bleizeffer@casperstartribune.net.