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ND oil regulator: Fed rules may threaten industry

James Macpherson, Associated Press

BISMARCK, N.D. (AP) -- Increased federal regulations and competition from other U.S. oil players could drastically cut production in North Dakota's oil patch, the state's top oil regulator said.

Lynn Helms, director of the state Department of Mineral Resources, told the House Appropriations Committee on Thursday that the state's oil industry is healthy but threatened by onerous federal regulations, increased competition from emerging oil fields and a struggling worldwide economy.

"It's not all roses and sunshine," Helms told lawmakers. "There are some serious risk factors."

Helms appealed to lawmakers to keep a $1 million fund available to challenge the federal government if it imposes additional hydraulic fracturing regulations or other rules that North Dakota finds excessive.

Hydraulic fracturing is a process that uses pressurized fluid and sand to break open oil- and gas-bearing rock up to 2 miles underground. The technique tapped the rich Bakken shale and Three Forks formations in North Dakota, propelling the state to the nation's No.2 oil producer behind Texas.

In other states, hydraulic fracturing has been blamed for endangering water quality. Helms said water sources in North Dakota are protected by thousands of feet of geologic formations atop fracking operations that can extend 2 miles horizontally. Elsewhere, hydraulic fracturing is often done at much shallower levels, he said.

North Dakota should have the authority to set its own regulations when it comes to oil drilling and hydraulic fracturing, Helms said, and it should have a million-dollar war chest available to challenge onerous federal rules. About a dozen other oil-producing states have similar funds in reserve, he said.

"There are some heavy hitters with big budgets backing us up," Helms said. The $1 million fund in North Dakota "is enough to make sure we're in the fight," he said.

Mitch Vance, of Bismarck, said he intended to submit comments to lawmakers over the fund, saying the state should not be using taxpayer money to fund lawsuits against the federal government.

"I don't feel that it's an appropriate expenditure and it's fiscally irresponsible," Vance told The Associated Press. "I don't think the state should be going to battle for the oil industry."

Helms said many oil producers in North Dakota also are drilling in other oil and gas fields across the U.S., and especially in Texas' oil- and gas-rich Eagle Ford Shale region.

"We want to be careful what we do with tax rates and things like that," Helms said. "A single decision in a board room can move our rigs to another play ... it would be very easy to shift their capital dollars into Texas."