Noah Addis / for NBC News

Dairy farmer Carol French holds a jar of water taken in July 2012 from the tap in her home in Sheshequin Township, Pa. French says her water first turned cloudy in March 2011, not long after natural gas companies began conducting hydraulic fracturing, or fracking, nearby.

BRADFORD COUNTY, Pa. — Carol French still has the canning jar full of cloudy and gelatinous water that came out of her well right before her daughter got sick and some of her 40 milk cows developed a rash. She agrees that this jar, by itself, proves nothing about the environmental impact of "fracking," the drilling technology largely responsible for America's boom in oil and gas production. You can't determine the environmental effects of drilling and fracking from one person's Mason jar full of water.

"I can't say it's definitely from the drilling, but there's strong circumstantial evidence," French said, referring to nearby natural gas drilling using fracking.

Making that direct connection often isn't possible even with 1,100 jars. That's how many examples are on a "list of the harmed," people who have offered personal stories of harm from fracking, as tallied by the advocacy group Pennsylvania Alliance for Clean Water and Air. 

Beyond such anecdotes, many facts about fracking's impact on the environment remain hotly contested. Consequences like water contamination have been established, but often it is not clear if they were directly caused by fracking or the result of sloppy drilling practices.

Meanwhile, the scientific studies that do exist suggest there are inconvenient truths for both sides of the fracking debate to confront.

The biggest hurdle for the pro-industry side: The rapid expansion of fracking over the last five years has resulted in confirmed cases of drinking water contamination, a house explosion, and air pollution.

But for those who oppose fracking, there is this: Burning the natural gas produced by fracking may be much better for the environment and public health, over the long run, than burning coal.

As detailed in the first three installments of Power Shift, an NBC News/CNBC special report, the United States is experiencing an energy boom created by new drilling technologies that have unlocked vast domestic oil and natural gas reserves. Proponents of fracking praise its economic benefits, while many foreign policy experts say this developing energy independence may give the U.S. new leverage in world affairs.

Many experts say that concern about the environmental consequences of fracking and other new drilling technologies may be the biggest obstacle to the continued growth of this newfound domestic energy supply. 

The  future of the industry may depend on whether more cases of environmental damage are documented, and whether they are regarded as unlikely accidents or the inevitable consequence of this expanding search for energy resources. That could, in turn, lead to stricter regulation that could slow or halt new drilling.

NBC News

Interactive map: Where the U.S. produces its energy. Click to enlarge

For now, your view of the energy boom may depend on whether drilling and fracking are happening in your back yard, as they have been in Carol French's back yard in northeast Pennsylvania since 2008. Bradford County is the busiest fracking county in the state. Just across the border, in New York, Gov. Andrew Cuomo is considering whether or not to allow fracking, which he says would take place only under "toughest-in-the-nation" environmental regulations. Much of the countryside in both states sits above the Marcellus Shale, the gas-rich band of rock that stretches to Ohio and West Virginia.

Water issues are in dispute 
To get the natural gas out of crevices deep underground, companies must pump in vast quantities of water and sand, under enough pressure to fracture rock and release the gas trapped inside. Also in the slurry that comes back up as waste water: toxic chemicals, including some that cause cancer, damage the nervous system, disrupt hormones and mutate genes. And those are just the ones we know about. Oil and gas companies in some states haven’t been compelled to say what’s in their brew, so some don’t.

The companies say the health risks are minimal. As of August 2011, oil and gas companies still said there had never been a documented case of drinking water contaminated by fracking. (The industry claim may still technically be true, using the industry definition of "fracking" to refer only to the process that happens after the drill hole is dug, not the drilling activities necessary before the fracking can occur.)

Reuters

How fracking works. Click to enlarge.

The first blemish on the industry's clean record came in a New York Times article documenting such a case from the 1980s. (Demonstration projects for hydraulic fracking began decades earlier in the U.S., though it didn't become common until the early 2000s.) Then came the most-publicized case of well-water contamination near fracking operations, in Dimock Township, Pa., just east of Bradford County; the federal Environmental Protection Agency said in 2012 that preliminary results found the water was safe to drink, though it did contain chemicals as well as explosive methane. Those results have been debated. The nonprofit investigative news organization Pro Publica has reported numerous confirmed health and safety problems related to drilling and fracking, including a house explosion near Cleveland, Ohio, after gas leaked into the home's water well.

Fracking is now regulated almost entirely by the states, though the EPA is slowly moving toward federal regulation. In the meantime, government has only lightly tapped the brakes to tighten regulation of the industry.

Drinking water contamination has been the biggest public relations problem for the industry. But the contaminants can come from several sources: from the hydraulic fracturing process itself, from the waste water, from the pits where drilling chemicals are stored, or from transporting chemicals and wastewater. The industry says that examples of contamination are very rare. Lisa Jackson, who was then then the EPA administrator, echoed the industry position that problems aren't systemic to fracking. "If you get a bad operator in there, somebody who’s not responsible, who’s not seeing how important it is to get this right, they can contaminate an aquifer," she said in a June 2011 talk. Environmentalists argue that pollution is an unavoidable part of the drilling process, not the result of shoddy practices.

It’s theoretically possible, though unproven, that some of the tainted water and dangerous gases might travel through deep underground crevices to unexpected places, such as the aquifers used for private wells and community water supplies. A July 2012 study by researchers at Duke University and California State Polytechnic University at Pomona found that salty water from deep underground could make its way into drinking water near the surface.

At the surface, there have also been outright accidents, leaking oil and toxins. Well casings have cracked, and sometimes pumping in more concrete for a "squeeze job" to stop the escaping water and chemicals won't stop the damage.

In Bradford County, the pleasant pond at the vacation home of Truman and Bonnie Burnett is a murky swamp, ringed by dead trees, after tens of thousands of gallons of drilling fluid spilled in 2009 from the property of their neighbor, who had signed a gas lease. His wife won't come back to their vacation home anymore, Truman Burnett says, so he has nailed a framed photo of her on a tree.

An industry lobbying group in North Dakota, where fracking is common, said the industry is doing what it can, but some mistakes are inevitable.

"You're going to have spills when you have more activity," Ron Ness, president of the North Dakota Petroleum Council, told a reporter with the investigative journalism organization Pro Publica, which documented more than 1,000 accidental oil spills in North Dakota in 2011.

Related story

Sorting through the claims, counterclaims about environmental impact of 'fracking,' 

Advice for a neighbor
"Our water changed on March 15, 2011," said Carol French, the dairy farmer, a few months after the drilling began in December 2010. What remains unclear is whether health issues experienced by her daughter and some of her cows afterward were caused by the turbid tapwater.

"My daughter was 24 at the time," French said. "She had a high fever for three days. I thought she had the flu. She had stabbing pains in her abdomen, and diarrhea. ... When I took her to the emergency room they checked her urine and blood to only find that the white blood cell count was high in her urine not in her blood. They then did a MRI to find that she had 'free floating fluid' in her abdomen, and her spleen, liver, and right ovary were enlarged. They didn't know what was wrong with her."

Then her daughter went to stay with a friend while looking for work. "Nine days later, all symptoms were gone and she was acting like herself," her mother said.

When she came back to visit, the symptoms returned. "When I would visit my daughter, my rashes would disappear, but return within five days after returning to my home. Our cattle seem to have breeding problems, but I can't say it's strictly due to my water changing without tests being done."

Now she has bad water a few times a month. When the tap water gets cloudy, she drives around to the nine gas well pads within a mile of her farm, writing down which ones have trucks and men working. She agrees that alone is a fruitless way of identifying a cause.

Slideshow: Drilling down and out in Texas

Jim Seida / NBC News

Watch a drilling crew at work near the small town of Garden City as they drill an oil well that eventually will extend more than a mile deep and a mile sideways in the Permian Basin.

Launch slideshow

She hasn't tested her water yet; nor has the state Department of Environmental Protection. They've been squabbling over the rules of how to test and whether the state will act if the results implicate the fracking operations. It's going to cost her $3,200 to get a lab to test for all the acids, detergents and poisons that companies say they use for fracking – or hydraulic fracturing – to break up underground shale and remove oil and natural gas.

Meanwhile, she tests her water for coliform and E. coli bacteria, meeting USDA and FDA standards for a dairy operation, and she ships the milk off to America's food supply.

No studies have found fracking chemicals have entered the food chain. Two Cornell University researchers have reported health impacts on cattle near drilling operations, but industry backers called the study "deeply  flawed."   

French started out as a supporter of fracking. She signed her own gas lease to allow fracking on the farm near Ulster, pocketing $13,600 starting back in 2006, but no company drilled on her land. Now she questions the economic benefits of fracking and worries about the environmental consequences.

"The standards of yesteryear," she said, "do not meet the industrial activities surrounding us. Like my milk inspector told me, 'You cannot find something you are not looking for.'"

A lot of her neighbors in the county, however, have put serious money in their pockets.

Among them is Robert "Bob" Wilmot, a former pipefitter who was able to rebuild a bed and breakfast he runs with his wife ("the best cook in the county," he says) in the small Bradford County town of Rome. He got $5 an acre for a gas lease on his 250-plus acres, then $75,000 more to let the gas company turn his hay field into a pond, and another $25,000 to allow a pipeline. Everyone in the county has heard stories of people making hundreds of thousands, even millions for one of the big compressor stations that send the gas down the pipeline. When the gas rush began here, churches put up signs such as "Thank God the gas companies are here."

Wilmot says he has confidence in the gas companies, and if anything he believes the state regulators are too tough.

But Wilmot does have a few reservations. Asked what advice would he offer to the people ten miles up the road in New York, which is considering fracking, he replied. 

"I'd go ahead. I wouldn't be in favor of putting fracking over by the Finger Lakes. That's a beautiful area. You can't replace them lakes."

Bill Dedman is an investigative reporter for NBC News; he reported from Pennsylvania. Karen Weintraub is a freelance health and science reporter in Boston.

More from Power Shift, an NBC News/CNBC special report:

Part 1: Energy boom dawning in America

Part 2: Oil, gas sector fuels US economy

Part 3: How the energy boom could shake up the global order

Without fanfare, China passed the United States in December to become the world's leading importer of oil – the first time in nearly 40 years that the U.S. didn’t own that dubious distinction. That same month, North Dakota, Ohio and Pennsylvania together produced 1.5 million barrels of oil a day -- more than Iran exported.

As those data points demonstrate, a dramatic shift is occurring in how energy is being produced and consumed around the world – one that could lead to far-reaching changes in the geopolitical order.

U.S. policy makers, intelligence analysts and other experts are beginning to grapple with the ramifications of such a change, which could bring with it both great benefits for the U.S. and potentially dangerous consequences, including the risk of upheaval in countries and regions heavily dependent on oil exports. 

But many experts say the U.S. would be the big winner, in position to reshape its foreign policy and boost its global influence. 

"People already are looking at the U.S. differently, seeing the U.S. as much more competitive in the world,” said energy analyst and author Dan Yergin, saying that he first noticed the change in the world view of the U.S. at the World Economic Forum in January in Davos, Switzerland.

Slideshow: Drilling down and out in Texas

Jim Seida / NBC News

Watch a drilling crew at work near the small town of Garden City, Texas, as they drill an oil well that eventually will extend more than a mile deep and a mile sideways in the Permian Basin.

Launch slideshow

As detailed in the first two installments of Power Shift, an NBC News/CNBC special report, the United States is reaping the benefits of an energy boom created by new drilling technologies that have unlocked vast domestic oil and natural gas reserves. Coupled with decreasing demand due to energy efficiency and continued cultivation of alternative energy sources, an increasing number of experts believe the U.S. could achieve energy independence by the end of the decade – realizing a dream born during the gas crisis of 1973.

But who would be the global winners and losers in such a scenario?

Most U.S. policy makers and experts agree that the U.S. and its allies – particularly its North American neighbors -- would be the biggest beneficiaries.

Boom helps Iran sanctions stick
In fact, they say, the West already has realized one major benefit: the success of international sanctions against Iran over its nuclear program.

Carlos Pascual, the State Department’s coordinator for international energy affairs, noted last month at the CERAWEEK energy conference in Houston that increased U.S. oil production, coupled with a boost in exports from Iraq and Libya, has kept oil prices stable despite the loss, because of sanctions, of up to 1.5 million barrels a day in Iranian exports.

“What this has taught us, and helped underscore, is that within the world we live in today, hard security issues and energy policy issues have become fundamentally intertwined,” he said.

NBC News

Interactive map: Where the US produces its energy. Click to enlarge.

Yergin, who also is a CNBC energy consultant and author of the energy-focused nonfiction best-sellers "The Quest" and "The Prize," put it this way: "People talk of the future impact. The increase in U.S oil production has already had an impact: Sanctions wouldn't have been effective without U.S. oil production. …  We've added (within the last year) almost as much as Iran was exporting before sanctions.”

Hossein Moussavian, a former Iranian ambassador to Germany and nuclear negotiator who's now a fellow at the Woodrow Wilson School at Princeton University, said "the radicals" in Tehran failed to foresee the changing energy picture, believing that sanctions wouldn't be imposed and that, if they were, they wouldn't work because oil prices would surge.

"The Iranian mistake was to believe …  the threats of referring Iran to the United Nations Security Council, imposing sanctions, was just a bluff," he said.

In the longer term, observers say that the Organization of Petroleum Exporting Countries (OPEC) and many of its member nations are likely to be the biggest losers if the U.S. continues to cut oil imports, likely decreasing oil prices in the process.

"A dramatic expansion of U.S. production could … push global spare capacity to exceed 8 million barrels per day, at which point OPEC could lose price control and crude oil prices would drop, possibly sharply," the U.S. intelligence community's internal think tank, the National Intelligence Council, said in its “Global Trends 2030” report in December. "Such a drop would take a heavy toll on many energy producers who are increasingly dependent on relatively high energy prices to balance their budgets."

With some analysts predicting that oil prices could drop as low as $70 to $90 a barrel – down from the current price of nearly $110 per barrel of Brent crude oil – a “scramble” among OPEC members for market share could ensue, said Edward Morse, an energy analyst with Citigroup and co-author of a recent report on titled “Energy 2020: Independence Day.”

An International Monetary Fund analysis indicates that many major oil-producing states need more than that lowest price level to meet their budgets and would be forced to increase output or reduce spending, which could trigger unrest. Among them, according to the report: Iran, Libya and Russia, at $117 a barrel; Iraq, $112; Yemen, $237; and the UAE, $84.

Iraq, which has had production from its rich oil fields curtailed by war or sanctions for half of the 53 years of OPEC’s existence, poses another challenge to the organization.

Now that it’s finally free of such interference, its production is increasing by between 500,000 and 900,000 barrels a year, making it the second fastest growing oil-producing country in the world after the U.S. 

“And, by God, no one’s going to impose any quota limitations on them,” said Morse, referring to Iraq’s OPEC partners. “So part of the challenge to OPEC is internal as well as external.”

Can Saudis maintain market-maker role?
Analysts say OPEC heavyweight Saudi Arabia, which controls vast reserves of oil and needs $71 a barrel to meet its budget, according to the IMF, will do everything it can to remain the market-maker. But in that role, it will face new challenges, they say.

“Over time, it should become increasingly challenging for Saudi Arabia to ‘overproduce’ and bring down prices to punish wayward OPEC members; without this disciplinary mechanism, it is unclear whether OPEC can remain cohesive,” according to the Citigroup report.

For its part, OPEC professes to be not unduly alarmed by the U.S. oil and natural gas boom. It highlights the "considerable uncertainties" surrounding wells drilled using hydraulic fracturing, or “fracking,” and associated technologies.

Yergin said he believes that the Saudis will be able to withstand the turbulence, and that they will provide a buffer for the organization’s lesser producers.

“It's too quick to write the obit for OPEC,” he said. “… The Saudis will figure it out. They are re-orientated to Asian markets, turning left instead of right.”

But some members of the oil cartel -- particularly Nigeria and Angola -- already are feeling the impact of the U.S. production surge, according to the Citigroup report. U.S. imports from the two countries dropped to 700,000 barrels a day at the end of 2012, down from 1.6 million barrels in 2007. That’s because U.S. production of light, sweet crude -- the kind of oil the West African nations produce -- has burgeoned in recent years. Citigroup forecasts that by the end of 2013, the market for Nigerian oil at Gulf Coast refineries could entirely dry up.

Longer term, say by 2020, cheaper heavy oil from Canada, freed from the so-called oil sands by new recovery technologies, could push similar oil from Venezuela out of the U.S. Gulf Coast market,  (assuming the Obama administration approves construction of the Keystone XL pipeline to carry it), according to forecasts.

Mexico also is expected to increase production, offering the U.S. access to another convenient and friendly provider.

"The Eagle Ford formation in Texas extends into Mexico and if you look at the Gulf, you'll see thousands of black dots marking oil platforms on the U.S. side but nothing on the Mexican side,” said Yergin. “That's changing. There is a political consensus among the three major parties on energy. You will see less immigration from Mexico. Mexico could become more of a BRIC (the term used for fast-developing economies like Brazil, Russia, India and China) than Brazil."

Besides guaranteeing a stable domestic energy supply, those energy resources add tools to the U.S. diplomatic toolbox, said David L. Phillips, director of the Peace-building and Human Rights Program at Columbia University.

"Why permit ourselves to be held hostage to regimes hostile to our national interests and who give safe harbor to those who would do us harm?" he asked. "… The glaring example is Venezuela. (Hugo) Chavez was so strongly anti-American and he was providing energy to our enemies. They should pay the price for non-cooperation."

Current and former diplomats note that the U.S. also could use its increased natural gas production to weaken rival Russia’s near monopoly on natural gas exports to Europe, via its state-controlled energy giant Gazprom. Already, declining prices fueled by the U.S. boom have benefited the European market.

"What has emerged is a competitive market that allowed the utilities of Western Europe to renegotiate their contract with Gazprom, affecting both prices and financing terms," said the State Department’s Pascual.

Adding to the pressure, the U.S. firm Cheniere Energy last month signed a 20-year deal to export enough liquefied natural gas to the British utility Centrica PLC to heat 1.8 million homes starting in 2018 – the first pact of its kind.

Growth slowing in China, India
As for China and India, both of which are expected to import increasing amounts of energy for years to come, analysts see indications that economic growth is slowing in both countries.

“In a pattern similar to the abrupt slowdown in demand growth seen in the Asian Tigers in the 1990s, Chinese demand growth has slowed to a more tepid 3 (percent) to 5 percent rate as compared to the double-digit growth seen in the early 2000s,” said a Citigroup report by analyst Seth Kleinman released last week.

That slowdown is in part due to the diminishing competitive edge that China enjoys over the U.S., Yergin said.

“Chinese wages are going up 20 percent a year. U.S. energy efficiency and increased production helps the U.S. in the mix on the global competitive landscape, he said, noting that Dow Chemical recently announced it will invest $4 billion in U.S. petrochemical production. “…That doesn’t happen without the U.S. advantage in energy.”

Citigroup's Morse and other analysts said the slowing Chinese economy and energy insecurity could prompt China to more militarization in the Far East -- a dangerous development in a region already beset by nationalist disputes and where the U.S. is expected to focus increasing attention. But none suggests that the Chinese are likely to challenge the United States as a global power, saying Beijing has neither the military assets nor the desire. Its strategy remains regional and attuned to "short-range engagements," Morse wrote.

The impact of the rebalancing of global energy production could be more severe in other nations.

Trevor Houser, a former energy analyst in the Obama administration State Department, worries about the prospect of failed states.

"If you look at the consequences of more U.S. production and reduced sales from OPEC, some would see that as a benefit," said Houser, now a partner with New York-based Rhodium Group, a global market analysis firm. "But starving those economies of oil revenue will surely have disruptive effects. It is not necessarily a good development for U.S. foreign policy and geopolitical stability in general."

AP file/Hassan Ammar

A U.S. F-18 fighter jet, left, lands on the aircraft carrier USS Abraham Lincoln as a U.S. destroyer sails alongside during exercises in the Persian Gulf in 2012.

Houser also said that U.S. energy independence could lead to isolationist policies, but will not insulate Americans from global price disruptions.

"The price Americans pay at the pump will still be determined by events in the global oil market, yet falling U.S. oil imports (are) going to reduce political support for safeguarding those global markets, and no one is willing or able to step up to the plate to replace us,” he said. “... The U.S. economy will still be vulnerable if someone blows up a Saudi port."

More from Power Shift, an NBC News/CNBC special report:

Part 1: Energy boom dawning in America

Part 2:  Oil, gas sector fuels US economy

That issue – specifically, “Do we leave the Middle East once our energy needs are secure?” – came up at the World Economic Forum in Davos, Switzerland, in January, said Yergin, recalling that “an oil minister came up to me and said, ‘Please don’t leave us.’”

Pascual, the State Department official, argues that such fears are overblown.

"These changes in no way change the U.S. commitment to global security, to peace and stability in the Middle East and to security in the transit lanes,” he said, referring to oil shipping routes. “Some people have asked is the United States going to become disinterested. The answer is no. It is absolutely in our self-interest to stay engaged.”

Richard Engel is NBC News' chief foreign correspondent; Robert Windrem is a senior investigative producer. 

Coming next Monday: Digging into the environmental consequences of 'fracking' 

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Tim Chong / Reuters file

The Delvar, a Malta-flagged Iranian crude oil supertanker, is seen anchored off Singapore on March 1, 2012.

LONDON - Iran is using old tankers, saved from the scrapyard by foreign middlemen, to ship out oil to China in ways that avoid Western sanctions, say officials involved with sanctions who showed Reuters corroborating documents.

The officials, from states involved in imposing sanctions to pressure Iran to curb its nuclear program, said the tankers - worth little more than scrap value - were a new way for Iran to keep its oil exports flowing by exploiting the legal limitations on Western powers' ability to make sanctions stick worldwide.

Officials showed Reuters shipping documents to support their allegation that eight ships, each of which can carry close to a day's worth of Iran's pre-sanctions exports, have loaded Iranian oil at sea. Publicly available tracking and other data are consistent with those documents and allegations.

"The tankers have been used for Iranian crude," one official said. "They are part of Iran's sanctions-busting strategy."

Dimitris Cambis, the Greek businessman who last year bought the ships - eight very large crude carriers, or VLCCs - to carry Middle East crude to Asia, flatly denied doing any business with Tehran or running clandestine shipments of its oil to China.

Cambis said he had not been involved in shipping before but had bought the tankers as part of a new venture he runs from the United Arab Emirates. He denied trading with Iran - though he has contacts there from his previous work in the oil industry.

Related story: Skulduggery at sea: Iran uses tankers off Malaysia to evade oil embargo

He denied his vessels have loaded oil from Iran while at anchor in the Gulf. Known as ship-to-ship transfers, or STS, such movements are hard to track as crews can switch off tracking beacons or not update their recorded positions for periods to conceal that one vessel has come alongside another.

Cambis also explained a stop in Iran by one of his tankers - recorded in publicly available tracking data - as having been only for an emergency repair, not to load an oil cargo.

"There is no Iranian vessel that has done any STS with us," Cambis told Reuters in Athens in response to the officials' allegations of taking oil from Iranian tankers owned by Tehran shipping group NITC. "We have nothing to do with NITC."

The officials involved with sanctions dispute his account and showed documents detailing several ship-to-ship loadings. They said all eight of the tankers were involved in Iran trade.

In one instance in early December, according to the shipping documents shown to Reuters by the officials, an NITC tanker named Marigold loaded Iranian crude onto the Leycothea, one of Cambis's eight ships, while both were at anchor off the UAE emirate of Sharjah. Public tracking showed Cambis's tanker made a call about a month later to Zhanjiang oil terminal in China.

Loading at sea lets vessels pick up a cargo without visiting the country of origin of the crude. Officials allege the tankers are also used as offshore storage for Iranian oil which can then be transferred onward to other ships, concealing its origins.

Officials in Iran, which rejects Western allegations it is seeking nuclear weapons, did not respond to requests for comment.

Muddying waters
Experts on sanctions law said that by operating outside the European Union, ship-owners had no clear obligation to observe rules barring EU companies from buying Iranian oil, though banks and insurers with EU or U.S. business ties are giving a wide berth to firms they suspect of dealing with Iran, given U.S. and EU efforts to penalize such firms within their own jurisdiction. 

"Such ships would be used to delete traces of a trade taking place," a London-based ship broker said.

While Iran has its own substantial tanker fleet, capable of carrying over 72 million barrels, the 2 million barrels that each of the eight tankers can move would be a useful addition to its capacity, analysts said - particularly as their foreign ownership and management could help conceal the Iranian origin of the oil, making it easier to obtain insurance, finance and other ship services that are affected by EU and U.S. sanctions.

Cambis said that between August and November he bought the eight ships: Leycothea, Glaros, Nereyda, Ocean Nymph, Seagull, Zap, Ocean Performer and Ulysses I. The first five are now managed by his firm, Sambouk Shipping, in Sharjah and he is in the process of transferring management of the remaining three.

In other movements indicated by the shipping documents, the Nereyda was also involved in a separate ship-to-ship transfer with NITC's Rainbow in the Gulf in November, while the Glaros took an offshore transfer from the Marigold there in December.

The Nereyda was later recorded arriving at a terminal in China in December. The Glaros appears to have remained in the Gulf since that December transfer, according to tracking data.

Asked about publicly available ship tracking data showing that the Glaros stopped at Iran's Larak Island oil terminal on October 20 last year, Cambis provided what he said was an affidavit by the ship's master describing an emergency repair carried out by Iranian divers when the tanker was headed to Saudi Arabia.

The master, named as I. Bonoutas, could not be reached for comment. Cambis denied loading any oil in Iran. After its stop at Larak, Glaros's next recorded visits, according to ship tracking data, were at Chinese ports between November 24 to December 1.

The eight tankers, built up to 20 years ago, can carry about 16 million barrels of oil among them, shipping databases show.

Iranian crude exports declined to an average of 1.5 million barrels per day (bpd) in 2012, down about 1 million bpd from 2011 levels, data from the International Energy Agency showed.

NITC blacklisted
The eight tankers were bought last year for a total of about $204 million, ship trading sources said - reflecting prices only 3-4 percent above their worth as raw metal. The purchases have been the object of considerable discussion among ship brokers - not least because they would more typically have been broken up.

A ship dealer based in London said, however: "They can carry on trading for as long as people are willing to employ them.

"There's really not much that any authorities can do." 

NITC has been blacklisted by the West and the EU has imposed an outright ban on providing ship insurance that would benefit Iran. The exit from Iran of top providers of ship certification, vital for port access, and the removal of Iranian vessels from international registries have added to operational challenges.

While NITC has expanded its fleet in recent months, experts say access to additional foreign tankers would give Tehran more flexibility in maintaining exports.

"The key word for the Iranians is resistance as in the Supreme Leader's declaration of a resistance economy," said Scott Lucas, a specialist on Iran at Birmingham University.

"This is not an economy which is going to produce growth but it is one which is going to try and avoid a domestic collapse."

More related stories

• Iran bans pistachio exports as sanctions bite
• Naming, shaming: Group targets Iran sanction busters

The times they are a-changing.

Who would have thought that Hollywood environmentalists would find themselves aligned with Persian Gulf oil barons?

But the strange politics of energy have managed to bring the greens into line with the OPEC-member United Arab Emirates on the issue of fracking.

"Promised Land" is a new film starring and written by Matt Damon and John Krasinski, based on a story by San Francisco-based writer Dave Eggers. In the film, Damon and actress Frances McDormand play a team that shows a rural town hard hit by economic decline, offering to pay big money for drilling rights.

Krasinski plays a local activist who leads the town into rebellion against the drillers, arguing that their plans would damage the local environment. To anyone who is familiar with the debates about fracking in, say, upstate New York, this will be a familiar story.

The more interesting twist here isn’t in the move — it’s in the movie’s creation. The film was produced “in association with” Image Media Abu Dhabi, a subsidiary of Abu Dhabi Media, as first reported by the Heritage Foundation. Abu Dhabi Media — which has never had a role in a major American film before — is wholly owned by the government of the United Arab Emirates, a small but extremely wealthy federation of absolute monarchies along the southern coast of the Persian Gulf.

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The UAE has the world’s seventh largest oil reserves, according to the CIA Factbook. It is ranked ahead of Russia and just behind Kuwait in proven oil reserves. It is the fourth largest exporter of oil in the world. And, of course, it is a member of OPEC.

Very obviously, the UAE has an interest in slowing down the expansion of hydraulic fracking that has created an energy boom in the United States. A popular film — there’s even talk of it being an Oscar candidate — might give a boost to the opponents of fracking.

 Although that’s not necessarily what will happen. There’s already a Facebook group formed by residents of the area in Pennsylvania where much of the movie was filmed who claim they were deceived about the filmmakers intentions.

 “They filmed this movie in our backyard. They told us it would be fair to drilling. It’s not. We’re p*ssed,” the group complains.

 No doubt news of the UAE’s involvement in the film will make backlash even more likely.

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By Abrahm Lustgarten
ProPublica

On a cold, overcast afternoon in January 2003, two tanker trucks backed up to an injection well site in a pasture outside Rosharon, Texas. There, under a steel shed, they began to unload thousands of gallons of wastewater for burial deep beneath the earth.

The waste – the byproduct of oil and gas drilling – was described in regulatory documents as a benign mixture of salt and water. But as the liquid rushed from the trucks, it released a billowing vapor of far more volatile materials, including benzene and other flammable hydrocarbons.

The truck engines, left to idle by their drivers, sucked the fumes from the air, revving into a high-pitched whine. Before anyone could react, one of the trucks backfired, releasing a spark that ignited the invisible cloud.

Fifteen-foot-high flames enveloped the steel shed and tankers. Two workers died, and four were rushed to the hospital with burns over much of their bodies. A third worker died six weeks later.

What happened that day at Rosharon was the result of a significant breakdown in the nation's efforts to regulate the handling of toxic waste, a ProPublica investigation shows.

The site at Rosharon is what is known as a "Class 2" well. Such wells are subject to looser rules and less scrutiny than others designed for hazardous materials. Had the chemicals the workers were disposing of that day come from a factory or a refinery, it would have been illegal to pour them into that well. But regulatory concessions won by the energy industry over the last three decades made it legal to dump similar substances into the Rosharon site – as long as they came from drilling.

Injection wells have proliferated over the last 60 years, in large part because they are the cheapest, most expedient way to manage hundreds of billions of gallons of industrial waste generated in the U.S. each year. Yet the dangers of injection are well known: In accidents dating back to the 1960s, toxic materials have bubbled up to the surface or escaped, contaminating aquifers that store supplies of drinking water.

There are now more than 150,000 Class 2 wells in 33 states, into which oil and gas drillers have injected at least 10 trillion gallons of fluid.  The numbers have increased rapidly in recent years, driven by expanding use of hydraulic fracturing to reach previously inaccessible resources.

ProPublica analyzed records summarizing more than 220,000 well inspections conducted between late 2007 and late 2010, including more than 194,000 for Class 2 wells. We also reviewed federal audits of state oversight programs, interviewed dozens of experts and explored court documents, case files, and the evolution of underground disposal law over the past 30 years.

Our examination shows that, amid growing use of Class 2 wells, fundamental safeguards are sometimes being ignored or circumvented. State and federal regulators often do little to confirm what pollutants go into wells for drilling waste. They rely heavily on an honor system in which companies are supposed to report what they are pumping into the earth, whether their wells are structurally sound, and whether they have violated any rules. 

More than 1,000 times in the three-year period examined, operators pumped waste into Class 2 wells at pressure levels they knew could fracture rock and lead to leaks. In at least 140 cases, companies injected waste illegally or without a permit.

In several instances, records show, operators did not meet requirements to identify old or abandoned wells near injection sites until waste flooded back up to the surface, or found ways to cheat on tests meant to make sure wells aren't leaking.

"The program is basically a paper tiger," said Mario Salazar, a former senior technical advisor to the Environmental Protection Agency who worked with its injection regulation program for 25 years. While wells that handle hazardous waste from other industries have been held to increasingly tough standards, Salazar said, Class 2 wells remain a gaping hole in the system. "There are not enough people to look at how these wells are drilled … to witness whether what they tell you they will do is in fact what they are doing."

Thanks in part to legislative measures and rulemaking dating back to the late 1970s, material from oil and gas drilling is defined as nonhazardous, no matter what it contains. Oversight of Class 2 wells is often relegated to overstretched, understaffed state oil and gas agencies, which have to balance encouraging energy production with protecting the environment. In some areas, funding for enforcement has dropped even as drilling activity has surged, leading to more wells and more waste overseen by fewer inspectors.

"Class 2 wells constitute a serious problem," said John Apps, a leading geoscientist and injection expert who works with the U.S. Department of Energy's Lawrence Berkeley National Laboratory. "The risk to water? I think it's high, partially because of the enormous number of these wells and the fact that they are not regulated with the same degree of conscientiousness."

In response to questions about the adequacy of oversight, the EPA, which holds primary regulatory authority over injection wells, reissued a statement it supplied to ProPublica for an earlier article in June.

"Underground injection has been and continues to be a viable technique for subsurface storage and disposal of fluids when properly done," a spokesperson wrote. "EPA recognizes that more can be done to enhance drinking water safeguards and, along with states and tribes, will work to improve the efficiency of the underground injection control program."

Some at the EPA and at the Department of Justice, which prosecutes environmental crimes, say the system's blind spots suggest that many more violations likely go undiscovered – at least until they mushroom into a crisis.

That's what happened at Rosharon.

The accident prompted the EPA to examine what else had been dumped at the site, ultimately exposing a scheme by a company that was not involved in the explosion, Texas Oil and Gathering, to pass off deadly chemicals from a petroleum refining plant as saltwater from drilling.  

The switch saved the company substantial fees by allowing it to dispose of the material in a Class 2 well, instead of a more stringently controlled well for hazardous waste, federal investigators said.

Texas Oil and Gathering's owner and operations manager were convicted of conspiring to dump illegal waste and violating the Safe Drinking Water Act. Both declined to comment for this article.

Texas officials acknowledged that they had not looked beyond the paperwork submitted by the operators using the well. The delivery trucks weren't inspected; the wastewater was not sampled.

"Staff had no reason to believe at the time that such testing was necessary at this facility,'' Ramona Nye, a spokeswoman for the Railroad Commission of Texas, which regulates the oil and gas industry activity in the state, wrote in an email. "The likelihood of unpermitted material being disposed of is low.''

William Miller, the EPA's chief investigator on the case, points out that the only reason anyone was held accountable for injection-related violations was because the site blew up.

"If you can get the stuff down the well how is anyone ever going to know what it was?" said Miller, who retired from the EPA in 2011. "There is no way to recover it. It's an easy way to commit a crime and not have any evidence left of it afterwards."

States and industry resist environmental protections
One reason that Texas Oil and Gathering was able to dump toxic waste for years without getting caught is that environmental regulations governing how the oil and gas industry disposes of material underground were weakened almost as soon as they were written.

A series of injection accidents beginning in the 1960s – involving pesticide waste in Colorado, dioxins in Beaumont, Texas, and drilling waste that spread for miles through a drinking water aquifer in Arkansas – prompted lawmakers to impose tougher rules on injection wells.

Wells were divided into classes, depending on the source of the waste they handled. Class 1 wells for chemical, pharmaceutical and other industrial wastes, along with Class 2 wells for the oil and gas industry, were subjected to tough controls under the Safe Drinking Water Act of 1974. From the start, the EPA says, oil and gas waste was treated as less toxic than waste from other industries, but all such material was seen as dangerous to drinking water.

Companies drilling the wells were required to do geological modeling to ensure that surrounding rock layers would not allow waste to escape through fissures or fault lines. They also were required to check for the presence of other wells that could be a conduit for contamination.  The EPA set baseline standards and mandated periodic inspections for defects. In many cases, states oversaw their implementation.

The ink had barely dried on the new regulations when the oil and gas industry – aided by sympathetic state regulators who thought their existing oversight was sufficient – began arguing that its waste should be treated differently.

Industry officials lobbied for state oil and gas agencies, some of which already had rules in place, to oversee Class 2 wells, not federal or local environmental officials. Some argued state energy regulators had greater expertise in well construction and regional geology.

In 1980, California Rep. Henry Waxman sponsored a measure that allowed the EPA to delegate authority to oversee Class 2 injection to state oil and gas regulators, even if the rules they applied varied from the Safe Drinking Water Act and federal guidelines.

A few years later, Dick Stamets, New Mexico's chief oil and gas regulator at the time, told a crowd of state regulators and industry representatives that the Waxman amendment was a biblical deliverance from oppressive federal oversight for the drilling industry.

In the late 1980s, the EPA moved to impose more stringent measures on injection wells after Congress banned injection of "hazardous" waste. The new rules barred underground dumping unless companies could prove the chemicals weren't a health threat. To earn permission to inject the waste,  companies would have to conduct exhaustive scientific reviews to dispose of hazardous materials, proving their waste wouldn't migrate underground for at least 10,000 years.

The energy industry moved preemptively to shield itself from these changes, too. The Safe Drinking Water Act prohibited the EPA from interfering with the economics of the oil and gas industry unless there was an imminent threat to health or the environment. The industry argued that its waste was mostly harmless brine and that testing and inspecting hundreds of thousands of wells for waste that would qualify as "hazardous" would delay drillers or cost them a fortune.  

"It would have been crippling to U.S. oil and gas production," said Lee Fuller, vice president of government relations for the Independent Petroleum Association of America. Fuller was a former staff member for the Senate Environment and Public Works Committee, whose ranking member at the time, the late Texas Sen. Lloyd Bentsen, led the fight against the hazardous waste rule. "So yes, the industry was very aggressively seeking some mechanism to address those consequences."

Bentsen had won the industry a temporary reprieve in 1980 by persuading Congress to redefine any substance that resulted from drilling – or "producing" – an oil or gas well as "non-hazardous," regardless of its chemical makeup, pending EPA study.  In 1988, the EPA made it permanent, handing oil and gas companies a landmark exemption.  From then on, benzene from the fertilizer industry was considered hazardous, threatening health and underground water supplies; benzene derived from wells for the oil and gas industry was not.

The effect was that the largest waste stream headed for underground injection, that from the oil and gas industry, was exempted from one of the most effective parts of environmental rules governing hazardous waste disposal.  

"A blanket exemption without any sense of what the actual chemistry of these wastewaters is, is very concerning," said Briana Mordick, a geologist at the Natural Resources Defense Council.  

Other protections also began to unravel, widening the gap between Class 1 and Class 2 well regulations. Both regulators and the industry regularly refer to drilling waste as "salt water" even though, according to a 2002 EPA internal training document obtained by ProPublica, "on any given day, the injectate of a Class II-D well has the potential to contain hazardous concentrations of solvents, acids, and other… hazardous wastes."

Once the wastes were defined as nonhazardous, there was little pfor holding Class 2 wells to the same rules as other waste being injected deep underground.

Today, for example, Class 1 wells for hazardous waste are tested for pressure continuously and are supposed to be inspected for cracks and leaks every 12 months. Oil and gas wells – though the goal is to inspect their sites annually – have to be tested only once every five years.

Injection wells are known to cause earthquakes, so Class 1 wells usually have rigorous seismic and geologic siting requirements. Often, Class 2 wells do not. An EPA staff member might spend an entire year reviewing an application for a new hazardous waste well. Class 2 wells are often permitted in bulk, meaning hundreds can be green-lighted in a matter of days.

Where Class 1 hazardous waste is injected, companies have to inspect a two-mile radius for old wells, making sure contaminants will have no avenue to shoot back up into drinking water aquifers or to the surface. The minimum standard for oil and gas companies is to inspect within 400 yards, even though it is widely believed, according to internal EPA memorandums obtained by ProPublica, that such a rule is arbitrarily defined, runs against "much existing evidence" and "may not afford adequate protection" of drinking water.

EPA officials acknowledge that their Class 1 regulations represent the best practices to keep water safe and that the risk of a Class 2 well leaking is no different than the risk of a Class 1 well leaking. The contrast in regulations reflects "varying legal authorities, not varying levels of confidence," an agency spokeswoman wrote in an email, referring to the mandate not to let environmental rules interfere with the nation's drilling progress.

State injection regulators counter that much drilling-related waste is put in the same geologic formations that produce oil and gas, in which contaminants like benzene naturally occur. The water close to these wells is often already undrinkable, they say, so lesser protections make sense.

According to the EPA's most recent inventory, the number of Class 2 wells is near an all-time high.  

Oklahoma, Texas, Kansas and California use tens of thousands of Class 2 wells to push out oil and gas or dispose of fracking fluids and "produced" water, as the waste derived from drilling is called. In North Dakota, injection permits have increased tenfold, with more wells being permitted in one month – September 2011 –than is typical in an entire year. New Mexico issued twice as many permits last year as it did in 2007. Ohio injected twice as much waste in 2011 as it did in 2006 and is evaluating applications for dozens of new injection sites. largely for waste exported by Pennsylvania and New York, where such wells are deemed unsafe.

As much as 70 percent of the waste destined for Class 2 facilities would be considered toxic if it were not for the loopholes in the law, according to Wilma Subra, a chemist and activist who sits on the board of STRONGER, a partnership of oil and gas industry representatives and state regulators aimed at bolstering state standards.

Recently, Stark Concerned Citizens, an anti-drilling group, asked Ohio regulators why radioactive materials such as radium weren't identified or disclosed when injected into Class 2 wells.

"The law allows it," Tom Tomastik, a geologist with Ohio's Department of Natural Resources and a national expert on injection well regulation, replied in a Sept. 17 email. "It does not matter what is in it. As long as it comes from the oil and gas field it can be injected."

Well operators game the safety tests
When Carl Weller showed up, shovel in hand, at a Kentucky farm field dotted with injection wells in June 2007, he was acting on a tip.  Weller, a contracted EPA injection inspector, was an expert in testing for what regulators call "mechanical integrity," using air pressure to check if wells have leaks or cracks. 

Such tests are among the only ways to know whether cement and steel well structures are intact, preventing brine and other chemicals from reaching drinking water.

Using his shovel, Weller dug around the top of a well, unearthing the steel tubing near the surface. A few inches down, he came across an apparatus he had never seen before: A section of high-pressure tubing ran out of the well bore and connected to a three-foot-long section of steel pipe, sealed at both ends. The apparatus appeared designed to divert air pumped into the well into the pipe instead, making the well test as if it were airtight. 

"The only reason that I know of that that device would be installed would be to perform a false mechanical integrity test, more than likely because the well itself would not pass," Weller testified in 2009 as part of a case against the well's operator. The EPA did not make Weller available to comment for this article.

When EPA inspectors kept digging, they found the buried devices on 10 more wells.

The case stunned regulators. Weller had been inspecting the site's injection wells, which were used to enhance the recovery of oil, for the better part of a decade, certifying them as safe.  After the EPA's discoveries, workers at the company that operated the wells, Roseclare Oil, accused its manager, Daniel Lewis, of having conspired to cheat the tests for much of that time.  

In 2009, Lewis was convicted of a felony charge for gaming the safety tests on Roseclare's wells and was sentenced to 3 years probation and a $5,000 fine. He maintains his innocence, saying the wells were rigged by his father, who ran the company's local operations until his death, but said such practices were typical in Kentucky's oil and gas industry. "I'd say it's pretty common," said Lewis, whose probation was commuted in 2011.  "But it's not something people go around talking about either."

From Lewis' perspective, injection well operators sometimes have little choice but to try to fool inspectors. Many wells are decades old and were drilled before the current regulations were written. Some are decrepit, their cement aging and cracked. They also can't be easily – or cheaply – repaired.

Lewis, who is now a part-owner of Roseclare and continues to run its operations, said that before wells were due for EPA inspections he would pretest them himself. If one failed, he'd enter problem-solving mode, prepping the site for the EPA's arrival. Two of his employees testified that he ordered them to fabricate and install the diverters.

"You go and work in it and try to get it to hold and it won't hold," Lewis said of the wells. "What are you going to do? It's kind of a 'Don't ask, don't tell.'"

Randy Ream, the Assistant U.S. Attorney for Kentucky's Western District who prosecuted the case against Lewis, called his scheme unusually elaborate but agreed that efforts to get around the rules for injection wells are common. Sometimes, he said, they result in the contamination of private drinking water wells.

"We have people who have constructed wells that are not certified injection wells, or we have people who will put their brine in a tank and carry it over and put it in somebody else's well," Ream said.  "One guy, he's got oil coming out of his shower head."

"There is just so much brine," Ream added, "and you have to get rid of it."

So many wells, so few inspectors
One obstacle to more effective enforcement in Kentucky and elsewhere, Ream said, is that regulators cannot always keep up with well tests and inspections.

According to EPA records, Kentucky has 3,403 Class 2 wells, which are supposed to be tested for mechanical integrity once every five years. But since 2007, an average of just 253 wells a year have been tested, less than half as many as there should have been to remain on schedule.

A spokeswoman for the EPA's regional office in Atlanta said in an email that only half of Kentucky's injection wells are actively used and only active wells can be tested. She said mechanical integrity tests are performed on each well every 36 months, but did not address the discrepancy between this schedule and the number of tests reflected in EPA data.

The EPA employs just six people to check its wells across the southeast, not just in Kentucky, but in Tennessee and Florida, too. Those same people are also responsible for working with state inspection programs in North and South Carolina, Georgia, Alabama and Mississippi, which have their own inspection staffs.

Most states aim to visit injection sites at least once a year, and some meet or exceed that schedule, EPA records show. Ohio, for example, recently added staff dedicated exclusively to injection oversight and visits its active injection sites every 12 weeks. (Ohio also insists that Class 2 wells meet many of the more stringent testing and permitting regulations it uses for Class 1 hazardous waste wells.)

"Ohio's [rules] are based on what we felt we needed to develop to continue to alleviate any concerns," said Tomastik, of Ohio's Department of Natural Resources. "Obviously without regulatory presence in the field, the operator is not concerned about operating within the requirements."

But understaffing seems to be endemic across drilling states, especially where state regulatory agencies are responsible for checking both producing oil and gas wells and injection wells for waste or to enhance production.

In Montana, EPA auditors noted that inspectors are choosing which wells to inspect and have a "significant" workload.  In North Dakota, EPA auditors also noted the pressures of "exponential" growth and an "increasing workload." 

To meet the goal of inspecting each well annually, Texas inspectors would have to visit eight wells a day, every day, including Sundays and Christmas. That's after Texas' Railroad Commission hired 65 staffers last year to help inspect the state's 428,000 wells.

Nye, the commission's spokeswoman, said the state had sufficient funding and inspected each of its commercial disposal wells twice last year.

"The Commission has a stringent and comprehensive review process for these wells," Nye wrote in an email.  "Railroad Commission staff work diligently to ensure saltwater disposal wells are not and will not be a problem."

But inspectors don't check on private disposal wells, which are far more numerous, with the same regularity. Nor do they keep a schedule for when officials should conduct such visits.

Other states are struggling under similar burdens. In Wyoming, inspectors would also have to check eight wells a day for each well to be checked once a year – a pace possible if wells are clustered together, experts said, but otherwise difficult to achieve. In West Virginia and Kansas, inspectors would have to check seven wells per day.  

Visiting injection wells often ranks low among inspectors' priorities unless there is an accident or spill, according to a 2007 Texas auditor's report. The most urgent responsibility for regulators, beyond responding to emergencies, is typically overseeing the development of new oil and gas wells.

The result is that several years can pass between inspections of many injection well sites. In 2010, state regulators visited less than half of the Class 2 sites that a federal well inventory shows they were responsible for monitoring, ProPublica's analysis showed.  EPA inspectors checked on such wells even less frequently, visiting less than one-quarter of the sites under their jurisdiction in 2010.

"I don't give a darn whether you have federal regulations, or a squeaky clean permitting system," said Bill Bryson, a member of the Kansas Geological Survey and the former head of Kansas' oil and gas commission. "If you don't have somebody going out and looking at the wells it doesn't do any good, and if you don't have the right people looking … it doesn't do any good either."

Much of the problem with oversight comes down to money, critics say. In some states, budgets and staff for oil and gas agencies have dropped relative to the number of new wells being drilled over the last nine years.

Kansas employs about the same number of inspectors as it did in 2003, even though it drills four times as many new wells. New drilling has nearly doubled in Louisiana over the same period, but the state's enforcement staff has remained static and its oil and gas budget has increased modestly. In Illinois, drilling has nearly doubled, while the number of enforcement staff has been reduced.  

Since the Underground Injection Control program is run under a federal mandate, states rely partly on money from the EPA to fund oversight and enforcement. Federal dollars make up 20 percent of Texas' budget, for example. But in the last 22 years, the EPA's annual operating budget for injection has remained about the same: $10 million. Taking inflation into account, funding has dropped at least 40 percent from 1990 to 2012, though the regulations for all well classes have only grown more complex.

"The UIC program has been flat funded for years," said Dan Jarvis, the field operations manager for Utah's Division of Oil, Gas and Mining.  "With more manpower, obviously you put them on the ground and you're going to have better compliance. Our field people are some of the greatest guys going, but they are overworked."

The EPA declined to disclose the operating budget for regional offices that monitor waste wells under federal jurisdiction or oversee state injection programs. Documents show, however, that in 2011 the agency suspended its travel budget for visits to some of the states that have the largest injection programs, including Louisiana, Texas and Oklahoma.

"Do you think we are doing more now than we were doing 30 years ago? No, there is no money," said Salazar, the former EPA injection expert. "There are not enough people to know what is going on. It is the ideal storm for industry. Less and less people, more and more things that the EPA has to do."

Ultimately, much of the responsibility for meeting EPA standards falls to companies themselves. Some operators routinely exceed the minimum requirements of injection regulations, says Hughbert Collier, who runs a Texas environmental engineering firm that consults with injection well operators. They conduct their own integrity tests every year and make sure employees visit well sites once a month.

But operators inclined to cut corners have little to hold them back.

"What most people would be surprised about is that regulators don't have real good control over everything that goes on in the regulated community," said Miller, the former EPA criminal investigator in Texas. "Most of our environmental law requires self-reporting and that requires honest people."

When violations are identified – such as the 140 times waste was illegally injected and noted in the regulatory reports – the consequences can be minimal, and only in rare cases do transgressions rise to the level of criminal prosecution. In the three years of national data reviewed by ProPublica, which included more than 24,000 formal notices of violations, only one case was referred to criminal investigators.

Usually, violations result in citations or informal warnings. If operators do not address violations, then modest fines may be levied; in some cases, wells are temporarily shut down. There is no central source of information on the size of fines, but an audit of Louisiana's injection program provides a glimpse: In 2011, the state collected an average of $158 for each violation.

After three deaths, two federal worker safety investigations and a criminal prosecution, few injection sites nationwide received as much regulatory scrutiny as those in Rosharon, Texas.  Yet, despite all the attention, the wells there later failed on the most basic level.  

On Feb. 17, 2010, thousands of gallons of waste that had been deposited into these wells gurgled to the surface in what the Railroad Commission described as a "breakout." Materials injected far below the earth had managed to migrate back up to the surface, perhaps through an old well missed by regulators.  

As of this June, investigators were still analyzing whether the chemicals injected underneath the site had reached water supplies.

Jesse Nankin contributed research for this report.

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Iran is using a little-known port of Labuan off the East Malaysia coast to hide millions of barrels of oil from Western sanctions, according to shipping data, industry sources and officials.

LABUAN, Malaysia -- Iran is using a little-known port off the East Malaysia coast to hide millions of barrels of oil from Western sanctions, according to shipping data, industry sources and officials.

A Reuters examination of shipping movements and interviews shows how Iranian crude is shipped to the area and loaded on to empty vessels at night to await potential Asian buyers. Storing the oil on hired tankers operating under the Panamanian flag in the calm waters off the tax-haven port of Labuan -- an offshore financial center about the size of Manhattan -- means Iran can keep its fleet active and ensure the flow of oil money into its struggling economy.

At least two large oil tankers have been unloaded this way in recent weeks and several more Iranian vessels were steaming toward Asia, according to Reuters Freight Fundamentals, which tracks the movement of the global tanker fleet. One was destined for a Chinese port, while three others, carrying as much as 6 million barrels of crude or fuel oil, were sailing to unknown destinations.

Iran would like to shift more oil to what is effectively a mobile storage depot off Malaysia's coast over the next few months, said an industry source familiar with Iran's planning who didn't want to be identified due to the sensitivity of the matter. But it is struggling to find shipowners willing to offer vessels for storage.

While not illegal, the dead-of-night transfer of oil in the South China Sea illustrates the lengths to which Iran will go to keep exporting its oil to skirt Western sanctions aimed at pressuring Tehran's suspected pursuit of nuclear weapons. A European Union oil embargo has virtually halted access around the world to insurance for Iranian crude and oil products.

Doing business with Iran's oil industry carries reputational and financial risk and the threat of losing insurance coverage.

No-man’s land
Less than 6.2 miles from the coast of Borneo, Labuan is sheltered from typhoons and is typically used to park unwanted ships rather than store expensive oil. People in the industry say this makes it an ideal place to blend or rebrand oil as non-Iranian and resell it under the radar of sanctions enforcers in Washington or Brussels.

"Labuan is like a no-man's land. There's no reason to be paying attention to Labuan," said a Singapore-based source familiar with floating storage operations in Southeast Asia.

Related story

Iran sanctions exceed expectations, but still don't change Tehran's behavior

The insurer of one of the storage ships that took oil from an Iranian tanker said it had been informed of the transfer by the British government on Aug. 16, and was looking into the matter.

Reuters

Click to see full-size diagram of how the oil shell game works.

With fewer customers, Iran has cut its oil output and almost halved exports from around 2 million barrels per day last year. The Labuan scheme means Iran can use its own tankers to move, rather than store, its oil. In April, shipping sources said more than half of Iran's tanker fleet was anchored in the Gulf just holding some 33 million barrels of oil - worth around $3 billion at today's prices.

Malaysian and Iranian officials did not respond to requests for comment for this article.

China, India, Japan and South Korea, which together buy over half of OPEC member Iran's crude exports, have all imported less this year, winning waivers from U.S. sanctions. Those waivers are up for renewal later this year, so buyers are careful not to be seen to be increasing imports from Iran again.

‘In the dark of night’
Last month, the Lantana, a tanker operated by the National Iranian Tanker Co. (NITC), transferred its cargo of around 1 million barrels of crude oil to the Titan Ruchira, a floating storage vessel, off the tiny tropical island of Pulau Kuraman near Labuan, port and shipping industry officials said. Around Aug. 10, another Iranian tanker, the Motion, discharged as much as 2 million barrels of fuel oil onto the Titan Tulshyan in the same area, said the officials.

The two ships are among 58 Iranian-owned vessels blacklisted by Washington in July for assisting in Iran's oil trade. Those measures bar U.S. companies and Americans from doing business with the ships.

"Our vessels are there and, as we understand it, there are no issues," a source familiar with NITC tanker chartering told Reuters.

A third NITC tanker, the Justice, had been heading for Labuan, but shipping data shows it changed course and should arrive at the Chinese port of Dalian on Sept. 17. Another tanker, the Pioneer, had been expected in Labuan early this month, but has anchored off the southwest Malaysian coast.

"That (Lantana) operation took place literally in the dark of night. They didn't even use a proper operator with experience to carry out the STS (ship-to-ship transfer)," said an East Malaysian-based shipping source. "The authorities were aware only after the fact."

Iran declined to sell the stored crude to a Chinese trader who offered $54 a barrel - only around half the price of Iran's cheapest heavy crudes - said a source familiar with those discussions.

Complex web
The two Titan vessels are owned by offshore companies linked to Singapore-based Tulshyan Group, which hired them out in 2010 to Hong Kong-based Titan Petrochemicals under a five-year bare boat charter -- an arrangement where Tulshyan has no staff managing or operating the vessel. Tulshyan, which shares a Singapore office with Titan, said it was not aware that the cargo on its ships was Iranian.

Titan, battling a shipping industry downturn caused by a glut of tankers, high bunker fuel prices and a shaky global economy, has struggled to meet charter payments to Tulshyan, according to a person familiar with the matter. Heavy with debt and with five straight years of losses, Titan is being sold to Chinese oil trader Guangdong Zhenrong Energy Co Ltd., whose parent, Zhuhai Zhenrong, is blacklisted by the United States as the biggest supplier of refined petroleum products to Iran.

Titan hired out the two tankers to Glammarine, a little-known shipping company that only recently registered in Labuan. Glammarine took the two ships under a six-month charter, with Titan's crews running the vessels' day-to-day operations and Glammarine taking responsibility for finding the cargo and paying for use of the ships.

"This was the first business we've done with Glammarine ... (and) there were no red flags raised (about them)," Titan director Augustine Cheong told Reuters in Singapore. "The due diligence we took was to check if they are legally incorporated. And it's on a time charter, so we have our own crew on board and can see if they're doing something wrong." Cheong said Titan would drop the charter to Glammarine if the oil was found to be Iranian.

Glammarine officials declined to comment. A visit to a listed Labuan address for Glammarine given in business registry documents found a rundown building in a neighborhood once used to house workers at a now defunct milk factory. The premises were closed.

Paper trail
Glammarine agreed to let a company called Account International Safe Oil use the Titan Ruchira and Titan Tulshyan to store 4 million barrels of Iranian oil, shipping sources said. Account International is not registered in Malaysia or Hong Kong, and Reuters was unable to find an address for the company or contact staff for comment. Buyers of Iranian oil in China, India and Japan said they had not heard of the company.

A Middle East industry source familiar with the company said Account International was an affiliate of the National Iranian Oil Co. A second source based in East Malaysia said the firm had business links to HK Intertrade, a Hong Kong-based firm sanctioned by the United States in July for operating as a front company for Iran.

"HK Intertrade purchases oil from NIOC and resells it to companies like Account," another southeast Asia-based shipping industry source said.

The ships' managers from Titan were not aware that the crude and fuel oil transferred from the Lantana and Motion were from Iran, Cheong said. "We requested BL (bill of lading) documents. We were told the cargo was from India ... and we believed they were ex-NITC tankers," he added. "We only operate the ships as the ship manager. We don't own the cargo."

A source familiar with the operations of the Titan Ruchira said the cargo was declared as Iranian to port officials in nearby Sabah. Customs officials in Sabah did not respond to Reuters emails. But in signed shipping documents seen by Reuters, Account International listed the 1 million barrels of crude oil unloaded by the Lantana as Indian.

India, though, doesn't allow the export of domestically produced crude. Nor did the Lantana call in at India on its journey to Malaysia that began at Iran's crude export hub at Kharg Island, according to Reuters Freight Fundamentals and industry sources in both India and the Middle East.

Account International also indicated on shipping documents seen by Reuters that the fuel oil on the Motion was from Fujairah, a major transhipment and storage hub in the United Arab Emirates. Shipping data shows the Motion did stop in Fujairah, but began its trip in Iran.

Insurance risk
The Titan Ruchira is insured by the North of England P&I Association, which said it was looking into the matter after being informed of the transfer off Labuan by London last month.

Western insurers underwrite around 90 percent of the world's tanker fleet, and are currently barred from covering ships carrying Iranian oil.

"There is a risk ... a vessel providing storage services for Iranian oil would breach European sanctions laws," said Mike Salthouse, director with North Insurance Management, which acts as manager for the North of England P&I Association. "I say a risk because sanctions as currently drafted appear to target the insurance of the transportation of Iranian oil and not the provision of insurance to facilities storing such products."

The insurer declined further comment on its investigations.

The Titan Tulsyhan is among some 7,000 vessels covered by Gard, the world's second-largest marine insurer.

"Gard takes very seriously any suggestion that it is in breach of any international sanctions and is conducting an investigation," it said in a response to Reuters queries. "Gard can, and will, withdraw any insurance cover if it believes sanctions are being breached."

Rakesh Tulshyan, head of the Tulshyan Group that owns the two Titan vessels, said that if there is "concrete evidence that it's Iranian oil", he will seek to have it removed from his vessels.

"Because of my reputation, I would rather not do any business with links to sanctioned countries," he told Reuters.

Reporting by Luke Pachymuthu in Labuan, Malaysia; Randy Fabi and Manash Goswami in Singapore, Nidhi Verma in New DelhiI, and Jonathan Saul in London.

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Hasan Sarbakhshian / AP file

An oil refinery and petrochemical complex is seen in the port of Mahshahr, Iran, in May 2007. A new report says a U.S. and EU oil embargo has severely reduced Iran's oil exports and revenues.

Are economic sanctions successful if the Iranian economy crashes but the regime continues developing its nuclear program? That is the dichotomy now playing out inside the Islamic state, according to new data on the Iranian economy and its nuclear program.

The latest data on the quantitative success of the sanctions comes from an economics research firm, the Rhodium Group of New York. In a paper published last week, Rhodium said that customs data from around the world show both Iranian oil exports and revenues have dropped precipitously.

“As customs data for the month of July rolls in, we’re getting a clearer picture of Iranian exports the first month after new U.S. and EU sanctions formally took effect,” states the report. “And it’s not a pretty one for Tehran.”

Specifically, the report states that the “best guess” on Iranian oil exports in July is no greater than 940,000 barrels per day, down from 1.7 million barrels per day  in June and 2.8 million barrels a day a year ago. Oil revenue dropped even more sharply, from $9.8 billion in July 2011 to $2.9 billion a year later. The disparity between the drop in oil sales and the decline in revenues was partly attributable to tumbling oil prices; even the value China’s oil imports dropped 28 percent from June to July. 

But Trevor Houser, the author of the report and a former senior adviser to the Obama State Department, says the success of the sanctions is surprising even to those who thought them up. “The July decline in Iranian oil exports and revenue is greater than anyone imagined would occur when U.S. sanctions were signed into law at the beginning of the year,” said Houser, a partner at Rhodium Group.  

Iran's currency hits fresh low against dollar as sanctions bite

U.S. and international sanctions -- mainly imposed by the European Union -- constrain a broad range commerce with Iran. They encompass the oil embargo, restrictions on the Iranian banking sector and its ability to carry out international transactions, the importation of industrial and construction equipment, and even luxury goods.

One of the most crippling has been a ban by SWIFT, the international financial clearinghouse, on Iranian funds transfers. Officials say the SWIFT sanctions have been particularly effective in limiting Iranian imports of all sorts of goods, even food supplies. The sanctions are so broad that the U.S. Treasury Department has exhaustive documentation on what is permitted, what is not, as well as licensing requirements.

At the same time, the International Atomic Energy Agency’s quarterly report on Iran’s nuclear program shows while Iranian oil revenue was declining, there was a simultaneous and dramatic increase in the number of centrifuges at Iran’s once-secret Fordow nuclear site. Iran in fact more than doubled the number of installed centrifuges -- from 1,064 to 2,140 -- in May, the IAEA reported.

Iran test-fires missile with new guidance system

The centrifuges, which are not the latest models that Iran possesses, have not been turned on, but U.S. officials call the speedup “troubling” if not a “game changer.” The Iranians also have increased their stockpile of highly enriched uranium, indicating that they have been getting better at the enrichment process.

Finally, at a military nuclear site named Parchin, which the IAEA wants to inspect, crucial buildings had been demolished and earth removed, the IAEA reported. Western diplomats see this as part of a cover-up by Iran of illicit nuclear-linked tests.

'Economic warfare'
So while the shipping data show the sanctions are a quantitative success – causing a rapid deterioration of Iran’s oil-driven economy – the IAEA data suggest no qualitative success. Iran continues to install new centrifuges and enrich more uranium, while refusing to permit IAEA inspections of Parchin.

“The challenge is it (the embargo) doesn’t seem to have much of an impact,” on Iran’s behavior, Houser admits.

CNBC: Iran oil revenue shrinks as sanctions sting

That doesn’t mean sanctions should be abandoned, says Mark Wallace, a former U.S. ambassador to the United Nations who runs an activist group, United Against Nuclear Iran, that’s engaged in shaming Western companies into abandoning business in Iran.

"Sanctions are clearly having an impact, but we can do much more and must,” said Wallace, who advocates “economic warfare” against Iran. “Importantly, the most robust sanctions in history can only prevent Iran from going nuclear if they are part of a larger strategy that includes thoughtful military planning and rigorous diplomatic activity."

Iranians feel the pain of sanctions: 'Everything has doubled in price'

Wallace points to victories big and small. He notes that in the last few days, a Russian firm decided to stop verifying safety and environmental standards for one of Iran's biggest shipping groups, making it more difficult for it to operate internationally.

It’s not surprising that economic sanctions don’t produce an immediate effect, says David Albright, founder and president of the Institute for Science and International Security (ISIS), which monitors nuclear proliferation. They take time.

“It’s a sticky thing with sanctions,” said Albright. “Nothing happens and then suddenly something big happens. It’s hard to predict what's going to happen over next six months as the sanctions tighten.

Slideshow: Everyday life in Iran

At schools, in shops, and on the streets of big cities and small towns, daily life plays out in Iran.

Launch slideshow

“The other part of the story (that Iran continues to make progress on its nuclear program) is true, which is why it’s all immensely frustrating to countries. It argues that ways have to be found to delay Iran from making progress on its nuclear program, because in a sense you need more time for sanctions and that means more covert actions,” like the Stuxnet virus and attacks on Iranian scientists. The former is believed to have been a joint U.S.-Israeli sabotage operation, while the latter is said to be an Israeli secret service initiative.

Israel tells US time is running out for peaceful end to Iran nuclear dispute

Albright also says that the sanctions have to be accompanied by a threat of military action if Iran continues on what the U.S., Israel and other Western nations believe is a path to nuclear weapons.

“The part of it is that it has to be clear in Iran's mind is that the United States will strike militarily to stop them,” he said.  

Iran: 'We can manage this'
Iran’s response has been that it will never give up its “legitimate” right to develop nuclear energy, while steadfastly denying it is working on a nuclear weapons program.

Privately, Iranian officials dismiss the effect sanctions have on Iran’s nuclear policies. They say the effects of the Iran-Iraq War that ravaged the country for eight years in the 1980s -- a war in which the United States covertly supported Saddam Hussein’s regime – were far worse.

 “If we could manage that, we can manage this,” said one official, speaking with NBC News on condition of anonymity.

Asked to estimate the chances that sanctions will lead to Iran ending its uranium program, the official replied, “Zero.”

Other Iranian officials say the sanctions are part of a “secret war” led by the U.S. and Israel that also includes the assassination of Iranian nuclear scientists, infections of Iranian computer networks, drone overflights and even U.S. Special Forces insertions within Iran’s borders.

Iran: We can destroy US bases 'minutes after an attack'

In the face of such provocations, one suggested, how long can Iran decline to respond?

Reprisals could already be under way. Israel has accused Iran of planning or carrying out recent attacks on its diplomatic personnel in Azerbaijan, India and Thailand, as well as orchestrating a bombing that killed four Israeli students on vacation in Bulgaria.

The Iranians strongly deny any role in those plots.

Robert Windrem is a senior investigative producer for NBC News.

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A worker uses a suction hose to remove oil washed ashore from the Deepwater Horizon spill in Belle Terre, La., on June 9, 2010.

LONDON -- Hopes that BP can settle early out of court on liability for its 2010 U.S. Gulf of Mexico oil spill looked forlorn on Wednesday after U.S. prosecutors laid out a legal case for gross negligence on which tens of billions of dollars hang.

In the two years that have passed since the spewing Macondo deep-water well was capped, the Department of Justice has made it clear BP may have a gross negligence case to answer -- implying a potential $21 billion fine on top of other payments,  some already made, others yet to be determined.

The British oil company has been vehement in denying such liability for the United States' worst offshore environmental disaster, which killed 11 people and poured crude into the sea for months. It repeated that position after the DoJ filing on Tuesday.

Nevertheless, the parties have been in talks about a multi-billion-dollar settlement that could cover outstanding liabilities, and two months ago the Financial Times raised expectations there was a deal in the air by reporting that BP was hoping to pay $15 billion to put the case behind it, while the DoJ was holding out for $25 billion.

The window of opportunity for a deal before the November presidential election and ahead of a trial scheduled to start in January has narrowed since then, and now investors see the weight of uncertainty on the British oil company's share price sticking around for a long time to come.

"The market was hoping that some sort agreement would be reached, either before the presidential elections or ahead of the trial," said Ivor Pether, a fund manager at Royal London Asset Management.

"We don't know when or whether they will reach agreement, but the aggressive language in today's DOJ statement might well reduce the chances of a swift settlement."

Related story

In Isaac's wake, Gulf beaches stained with oil tar

BP shares were down 4 percent on Wednesday morning after 39 pages of DoJ court papers homed in on a key well pressure test, saying the way it had been "so stunningly, blindingly botched in so many ways, by so many people, demonstrates gross negligence."

Uncertainty over whether BP can continue to operate in Russia, and whether it can even exit its business there at a decent price, have combined with the oil spill wrangle to put BP's share valuation based on earnings at a discount to the sector in Europe, even though it is the second largest next to Royal Dutch/Shell .

"While these (DoJ) accusations are not entirely new or surprising, they appear to be a firming of the DoJ language," said Credit Suisse analyst Kim Fustier in a note.

"This suggests to us that a settlement acceptable to BP is not imminent, and lowers BP's chances of settling in the low end of the $15 (billion)-$25 billion range. Hence, if it cannot get to a satisfactory agreement we think it might be best for BP to continue to litigate, which would maintain the Macondo overhang for longer than we'd hoped. ... We believe a settlement or $20 billion or less would be a positive."

Breakup talk revived
Pressure for closure on the spill and in Russia is something chief executive Bob Dudley has become used to since he took over from Tony Hayward in the aftermath of the spill.

And on Wednesday, one analyst revived suggestions that the company should be broken up to release underlying value on the business.

"We reiterate that the best outcome for long-suffering BP shareholders, and indeed the only credible route to unlock our increased SoTP (sum-of-the-parts) value … is a demerger of remaining assets starting with the U.S.," said Investec analyst Stuart Joyner in a note.

Joyner said that valuation would be more than 68 percent higher than BP's current share price, and suggests there could be $90 billion of hidden value in a stock valued at around $132 billion. Other analysts' calculations based on pre-Macondo comparisons with rival Shell have put total lost value at between $60 billion and $70 billion.

"BP died when it failed to cap the Macondo spill in the first few days," said Joyner. "The CEO did a good job of saving BP from forced liquidation, but we do not believe he can revert to its pre-Macondo strategy." 

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Oil drilling has sparked a frenzied prosperity in Jeff Keller's formerly quiet corner of western North Dakota in recent years, bringing an infusion of jobs and reviving moribund local businesses.

But Keller, a natural resource manager for the Army Corps of Engineers, has seen a more ominous effect of the boom, too: Oil companies are spilling and dumping drilling waste onto the region's land and into its waterways with increasing regularity. 

Hydraulic fracturing — the controversial process behind the spread of natural gas drilling — is enabling oil companies to reach previously inaccessible reserves in North Dakota, triggering a turnaround not only in the state's fortunes, but also in domestic energy production. North Dakota now ranks second behind only Texas in oil output nationwide.

The downside is waste — lots of it. Companies produce millions of gallons of salty, chemical-infused wastewater, known as brine, as part of drilling and fracking each well. Drillers are supposed to inject this material thousands of feet underground into disposal wells, but some of it isn't making it that far.

According to data obtained by ProPublica, oil companies in North Dakota reported more than 1,000 accidental releases of oil, drilling wastewater or other fluids in 2011, about as many as in the previous two years combined. Many more illicit releases went unreported, state regulators acknowledge, when companies dumped truckloads of toxic fluid along the road or drained waste pits illegally.

State officials say most of the releases are small. But in several cases, spills turned out to be far larger than initially thought, totaling millions of gallons. Releases of brine, which is often laced with carcinogenic chemicals and heavy metals, have wiped out aquatic life in streams and wetlands and sterilized farmland. The effects on land can last for years, or even decades.

Compounding such problems, state regulators have often been unable — or unwilling — to compel energy companies to clean up their mess, our reporting showed.

Under North Dakota regulations, the agencies that oversee drilling and water safety can sanction companies that dump or spill waste, but they seldom do: They have issued fewer than 50 disciplinary actions for all types of drilling violations, including spills, over the past three years.

Keller has filed several complaints with the state during this time span after observing trucks dumping wastewater and spotting evidence of a spill in a field near his home. He was rebuffed or ignored every time, he said.

"There's no enforcement," said Keller, 50, an avid outdoorsman who has spent his career managing Lake Sakakawea, a reservoir created by damming the Missouri River. "None."

State officials say they rely on companies to clean up spills voluntarily, and that in most cases, they do. Mark Bohrer, who oversees spill reports for the Department of Mineral Resources, the agency that regulates drilling, said the number of spills is acceptable given the pace of drilling and that he sees little risk of long-term damage.

Kris Roberts, who responds to spills for the Health Department, which protects state waters, agreed, but acknowledged that the state does not have the manpower to prevent or respond to illegal dumping.

"It's happening often enough that we see it as a significant problem," he said. "What's the solution? Catching them. What's the problem? Catching them."

Ron Ness, president of the North Dakota Petroleum Council, a lobbying group, said the industry is doing what it can to minimize spills and their impacts.

"You're going to have spills when you have more activity," he said. "I would think North Dakotans would say the industry is doing a good job."

In response to rising environmental concerns related to drilling waste, North Dakota's legislature passed a handful of new regulations this year, including a rule that bars storing wastewater in open pits.

Still, advocates for landowners say they have seen little will, at either the state or federal level, to impose limits that could slow the pace of drilling.

The Obama administration is facilitating drilling projects on federal land in western North Dakota by expediting environmental reviews. North Dakota's Gov. Jack Dalrymple has urged energy companies to see his administration as a "faithful and long-term partner."

"North Dakota's political leadership is still in the mold where a lot of our oil and gas policy reflects a strong desire to have another oil boom," said Mark Trechock, who headed the Dakota Resource Council, a landowner group that has pushed for stronger oversight, until his retirement this year. "Well, we got it now."

Reaching 'the Crazy Point'
Keller's office in Williston is as good a spot as any to see the impacts of the oil boom.

The tiny prefab shack — cluttered with mounted fish, piles of antlers and a wolf pelt Keller bought in Alaska — is wedged between a levee that holds back Missouri River floodwaters and a new oil well, topped by a blazing gas flare. Just beyond the oil well sits an intersection where Keller estimates he saw an accident a week during one stretch last year due to increased traffic from drilling.

Keller describes the changes to his hometown in a voice just short of a yell, as if he's competing with nearby engine noise. Local grocery stores can barely keep shelves stocked and the town movie theater is so crowded it seats people in the aisle, he said. The cost of housing has skyrocketed, with some apartments fetching rents similar to those in New York City.

Slideshow: 'Man camps' of the oil patch

Gregory Bull / AP

Click the view images of living conditions in the North Dakota oil fields.

Launch slideshow

"With the way it is now," Keller said, "you're getting to the crazy point."

Oil companies are drilling upwards of 200 wells each month in northwestern North Dakota, an area roughly twice the size of New Jersey.

North Dakota is pumping more than 575,000 barrels of oil a day now, more than double what the state produced two years ago. Expanded drilling in the state has helped overall U.S. oil production grow for the first time in a quarter century, stoking hopes for greater energy independence.

NBC's Rock Center: Thousands of jobs from North Dakota's boom

It has also reinvigorated North Dakota's once-stagnant economy. Unemployment sits at 3 percent. The activity has reversed a population decline that began in the mid-1980s, when the last oil boom went bust.

The growth has come at a cost, however. At a conference on oil field infrastructure in October, one executive noted that McKenzie County, which sits in the heart of the oil patch and had a population of 6,360 people in 2010, required nearly $200 million in road repairs.

The number of spill reports, which generally come from the oil companies themselves, nearly doubled from 2010 to 2011. Energy companies report their spills to the Department of Mineral Resources, which shares them with the Health Department. The two agencies work together to investigate incidents.

In December, a stack of reports a quarter-inch thick piled up on Kris Roberts' desk. He received 34 new cases in the first week of that month alone.

"Is it a big issue?" he said. "Yes, it is."

The Health Department has added three staffers to handle the influx and the Department of Mineral Resources is increasing its workforce by 30 percent, but Roberts acknowledges they can't investigate every report.

Even with the new hires, the Department of Mineral Resources still has fewer field inspectors than agencies in other drilling states. Oklahoma, for example, which has comparable drilling activity, has 58 inspectors to North Dakota's 19.

Of the 1,073 releases reported last year, about 60 percent involved oil and one-third spread brine. In about two-thirds of the cases, material was not contained to the accident site and leaked into the ground or waterways.

But the official data gives only a partial picture, Roberts said, missing an unknown number of unreported incidents.

"One, five, 10, 100? If it didn't get reported, how do you count them?" he said.

He said truckers often dump their wastewater rather than wait in line at injection wells. The Department of Mineral Resources asks companies how much brine their wells produce and how much they dispose of as waste, but its inspectors don't audit those numbers. Short of catching someone in the act, there's no way to stop illegal dumping.

The state also has no real estimate for how much fluid spills out accidentally from tanks, pipes, trucks and other equipment. Companies are supposed to report spill volumes, but officials acknowledge the numbers are often inexact or flat-out wrong. In 40 cases last year, the company responsible didn't know how much had spilled so it simply listed the volume of fluid as zero.

In one case last July, workers for Petro Harvester, a small, Texas-based oil company, noticed a swath of dead vegetation in a field near one of the company's saltwater disposal lines. The company reported the spill the next day, estimating that 12,600 gallons of brine had leaked.

When state and county officials came to assess the damage, however, they found evidence of a much larger accident. The leak, which had gone undetected for days or weeks, had sterilized about 24 acres of land. Officials later estimated the spill to be at least 2 million gallons of brine, Roberts said, which would make it the largest ever in the state.

Yet state records still put the volume at 12,600 gallons and Roberts sees no reason to change it.

"It's almost like rubbing salt in a raw wound," Roberts said, criticizing efforts to tabulate a number as "bean counting." Changing a report would not change reality, nor would it help anyone, he added. "If we try to go back and revisit the past over and over and over again, what's it going to do? Nothing good."

In a written statement, Petro Harvester said tests showed the spill had not contaminated groundwater and that it would continue monitoring the site for signs of damage. State records show the company hired a contractor to cover the land with 40 truckloads of a chemical that leaches salt from the soil.

Nearly a year later, however, even weeds won't grow in the area, said Darwin Peterson, who farms the land. While Petro Harvester has promised to compensate him for lost crops, Peterson said he hasn't heard from the company in months and he doesn't expect the land to be usable for years. "It's pretty devastating," he said.

Little enforcement
The Department of Mineral Resources and the Health Department have the authority to sanction companies that spill or dump fluids, but they rarely do.

The Department of Mineral Resources has issued just 45 enforcement actions over the last three years. Spokeswoman Alison Ritter could not say how many of those were for spills or releases, as opposed to other drilling violations, or how many resulted in fines.

The Health Department has taken just one action against an oil company in the past three years, citing Continental Resources for oil and brine spills that turned two streams into temporary toxic dumps. The department initially fined Continental $328,500, plus about $14,000 for agency costs. Ultimately, however, the state settled and Continental paid just $35,000 in fines.

The agency has not yet penalized Petro Harvester for the July spill, thought it has issued a notice of violation and could impose a fine in the future, Roberts said, one of several spill-related enforcement actions the agency is considering.

Derrick Braaten, a Bismarck lawyer whose firm represents dozens of farmers and landowner groups, said his clients often get little support from regulators when oil companies damage their property.

State officials step in in the largest cases, he said, but let smaller ones slide. Landowners can sue, but most prefer to take whatever drillers offer rather than taking their chances in court.

"The oil company will say, that's worth $400 an acre, so here's $400 for ruining that acre," Braaten said.

Daryl Peterson, a client of Braaten's who is not related to Darwin Peterson, said a series of drilling waste releases stretching back 15 years have rendered several acres unusable of the 2,000 or so he farms. The state has not compelled the companies that caused the damage to repair it, he said. Peterson hasn't wanted to spend the hundreds of thousands of dollars it would take to haul out the dirt and replace it, so the land lies fallow.

"I pay taxes on that land," he said.

At least 15 North Dakota residents, frustrated with state officials' inaction, have taken drilling-related complaints to the U.S. Environmental Protection Agency in the last two years, records show.

Last September, for example, a rancher near Williston told the EPA that Brigham Oil and Gas had plowed through the side of a waste pit [10], sending fluid into the pond his cattle drink from and a nearby creek. When the rancher called Brigham to complain, he said, an employee told him this was "the way they do business."

A spokeswoman for Statoil, which acquired Brigham, said the company stores only fresh water in open pits, not wastewater, and that "we can't remember ever having responded in such a manner" to a report about a spill.

Federal officials can offer little relief.

Congress has largely delegated oversight of oil field spills to the states. EPA spokesman Richard Mylott said the agency investigates complaints about releases on federal lands, but refers complaints involving private property to state regulators.

The EPA handed the complaint about Brigham to an official with North Dakota's Health Department, who said he had already spoken to the company.

"They said this was an isolated occurrence, this is not how they handle frac water and it would not happen again," the official wrote to the EPA. "As far as we are concerned, this complaint is closed." 

Salting the Earth
Six years ago, a four-inch saltwater pipeline ruptured just outside Linda Monson's property line, leaking about a million gallons of salty wastewater.

As it cascaded down a hill and into Charbonneau Creek, which cuts through Monson's pasture, the spill deposited metals and carcinogenic hydrocarbons in the soil. The toxic brew wiped out the creek's fish, turtles and other life, reaching 15 miles downstream.

After suing Zenergy Inc., the oil company that owns the line, Monson reached a settlement that restricts what she can say about the incident.

"When this first happened, it pretty much consumed my life," Monson said. "Now I don't even want to think about it."

The company has paid a $70,000 fine and committed to cleaning the site, but the case shows how difficult the cleanup can be. When brine leaks into the ground, the sodium binds to the soil, displacing other minerals and inhibiting plants' ability to absorb nutrients and water. Short of replacing the soil, the best option is to try to speed the natural flushing of the system, which can take decades.

Zenergy has tried both. According to a Department of Mineral Resources report, the company has spent more than $3 million hauling away dirt and pumping out contaminated groundwater — nearly 31 million gallons as of December 2010, the most recent data available.

But more than a dozen acres of Monson's pasture remain fenced off and out of use. The cattle no longer drink from the creek, which was their main water source. Zenergy dug a well to replace it.

Shallow groundwater in the area remains thousands of times saltier than it should be and continues to leak into the stream and through the ground, contaminating new areas.

There's little understanding of what long-term impacts hundreds of such releases could be having on western North Dakota's land and water, said Micah Reuber.

Until last year, Reuber was the environmental contaminant specialist in North Dakota for the federal Fish and Wildlife Service, which oversees wetlands and waterways.

Reuber quit after growing increasingly frustrated with the inadequate resources devoted to the position. Responding to oil field spills was supposed to be a small part of his job, but it came to consume all of his time.

"It didn't seem like we were keeping pace with it at all," he said. "It got to be demoralizing."

Reuber said no agency, federal or state, has the money or staff to study the effects of drilling waste releases in North Dakota. The closest thing is a small ongoing federal study across the border in Montana, where scientists are investigating how decades of oil production have affected the underground water supply for the city of Poplar.

Joanna Thamke, a groundwater specialist with the U.S. Geological Survey in Montana, started mapping contamination from drilling 20 years ago. She estimated it had spread through about 12 square miles of the aquifer, which is the only source of drinking water in the area. Over the years, brine had leaked through old well bores, buried waste pits and aging tanks and pipes.

In the Poplar study and others, Thamke has found that plumes of contaminated groundwater can take decades to dissipate and sometimes move to new areas.

"What we found is the plumes, after two decades, have not gone away," she said. "They've spread out."

Poplar's water supply is currently safe to drink, but the EPA has said it will become too salty as the contamination spreads. In March, the agency ordered three oil companies to treat the water or to find another source.

North Dakota officials are quick to point out that oversight and regulations are stronger today than they were when drilling began in the area in the 1950s. One significant difference is that waste pits, where oil companies store and dispose of the rock and debris produced during drilling, are now lined with plastic to prevent leaching into the ground.

New rules, effective April 1, require drillers in North Dakota to divert liquid waste to tanks instead of pits. Until now, drillers could store the liquid in pits for up to a year before pumping it out in order to bury the solids on site. The rule would prevent a repeat of the spring of 2011, when record snowmelt and flooding caused dozens of pits to overflow their banks.

But Reuber worries that the industry and regulators are repeating past mistakes. Not long before he left the Fish and Wildlife Service, he found a set of old slides showing waste pits and spills from decades ago.

"They looked almost exactly like photos I had taken," he said. "There's a spill into a creek bottom in the Badlands and it was sitting there with no one cleaning it up and containing it. And yeah, I got a photo like that, too."

Keller has grown so dispirited by the changes brought by the boom that he is considering retiring after 30 years with the Army Corps and moving away from Williston. He runs a side business in scrap metal that would supplement his pension.

Still, determined to protect the area, he keeps alerting regulators whenever he spots evidence that oil companies have dumped or spilled waste.

Last July, when he saw signs of a spill near his home, Keller notified the Health Department and sent pictures showing a trail of dead grass to an acquaintance at the EPA regional office in Denver. The brown swath led from a well site into a creek.

If the spills continued, he warned the EPA in an email, they could "kill off the entire watershed."

EPA officials said they spoke with Keller, but did not follow up on the incident beyond that. The state never responded, Keller said. The site remained untested and was never cleaned up.

"There was no restoration work whatsoever," Keller said.

This report, "North Dakota's Oil Boom Brings Damage Along With Prosperity", first appeared at propublica.org.