A conflict of interest for chief oil and gas regulator?

Austin-based Parsley Energy had approached the state’s oil and gas regulatory agency with a routine request for one of its West Texas oil sites: Give us permission to burn off excess natural gas in case we can't move it to market.

Such a move would effectively allow Parsley to keep pumping and producing valuable oil at the wells, scattered over a 650-acre lease site known as Ringo 9, in case limited pipeline capacity prevented moving the cheap, byproduct gas off the site. The gas-flaring option meant mineral owners could continue to get their cut of oil production.

In January, all three members of the Texas Railroad Commission, the regulatory agency, approved the request — including its chairwoman, Christi Craddick.

But Craddick, who is running for re-election, did not disclose at the time that she is a mineral owner with an interest in the Reagan County site, according to deed and drilling records reviewed by the American-Statesman — one of more than 150 Texas well sites in which she has an interest.

That decision appears to personally benefit Craddick — if only as much as $40 per month under current oil prices.

Craddick declined to be interviewed for this story, but she said in a statement to the Statesman that she had done nothing wrong and had complied with all state laws.

If nothing else, however, the episode points to the intimacy between the agency's overseers and the industry it regulates.

Perhaps no commissioner in recent years has epitomized that coziness more than Craddick, 48, a lawyer by training who sees her role as much as booster for a key sector of the Texas economy as regulator.

She has won awards from the fossil fuel industry for her regulatory approach. She has resisted changing the agency's name — it has not regulated railroads for decades — to one that agency critics say would more honestly reflect its duties and shine a brighter light on its operations. And she has received the lion's share of her campaign money from oil and gas company executives.

Hailing from a Midland oil and gas family whose political and business interests have long run congruent, Craddick's decisions easing regulations are, in aggregate, good for a clan with extensive interests in the oil-rich Permian Basin. In addition to her own mineral holdings, she has interests in family-related partnerships Quarry LLC and Craddick Partners. Her father, Tom Craddick, is the longest-serving state representative in Texas history and was formerly speaker of the Texas House — and he serves on the board of at least one oil and gas company whose operations his daughter also has voted on.

Touting her record to supporters, Christi Craddick says she has helped drive down the amount of fresh water being used in energy production; secured money for a technology overhaul at the agency and to pay for more inspectors; “stood up to federal overreach so Texas is able to regulate energy production within its own borders;" and advocated for technical programs for students so they can join the industry without a college degree.

In her campaign literature, she said she’s “running for a second term so that we can keep Texas on the path to energy prosperity.”

A property in West Texas

One way to keep production going amid an oil-producing boom: burn off, or flare, a natural gas byproduct when pipelines can't bear it to market.

The Wall Street Journal recently found that of the 20,000 flaring permit requests companies submitted to the state agency over the last five years, none was denied. Roughly $1 million worth of natural gas is burned away daily in the Permian Basin as a result of insufficient natural gas pipelines amid an oil-producing boom, according to the newspaper.

In that sense, the Parsley gas-flaring request that came before the Railroad Commission in January for its Ringo 9 wells in the Permian Basin was not unusual.

Under the terms of the request, the company could flare gas on the four wells on the lease. The wells are connected to pipelines that carry the gas to market, "and flaring is for emergency purposes," the company reported to the Railroad Commission, according to a discussion of evidence by agency hearing examiners.

The flaring exemption would "allow Parsley to avoid shutting in wells," the examiners reported.

A company official told the Statesman that Christi Craddick didn't contact the company about the request, which was unopposed and recommended by the agency's examiners.

"Parsley follows state and federal ethics laws that regulate interactions with candidates and elected officials, and would not unlawfully attempt to influence regulatory decisions," company spokeswoman Katharine McAden said. "We appreciate Chairman Craddick’s — and all relevant elected leaders — efforts to promote the health and safety of our industry.”

Railroad Commission rules hold that a commissioner “with a personal or private interest in a measure, proposal or decision pending before the Commission shall publicly disclose the fact to the Commission in an open meeting. The Commissioner may not vote or otherwise participate in the decision. The disclosure shall be entered in the minutes of the meeting.”

In her statement to the Statesman, Craddick said: "Texas ethics laws are in place to ensure transparency of our public officials and maintain the public’s trust in our government, and I take these laws seriously. I do not have any investments associated with costs related to the exploration, drilling and production of oil and gas (commonly known as a ‘working interest’), and I fully report any mineral interest or other investments I own in accordance with the law. Any action I take is in full compliance with our rules and is based solely upon what I believe is in the best interest of the state, and all Texans." 

Allegations of a conflict of interest came up during the Republican primary this year.

Michael Quinn Sullivan of the conservative group Empower Texans, which endorsed her, asked Craddick about the charge in late January.

"You've got to — as anybody who votes on things — look at what you have interests in, make determinations, and make sure that it's not going to benefit you one way or another," she told Sullivan. "I don't think on (the flaring item) I had any benefits."

Even in cases that have drawn no objection from the public and are lumped together for the commissioners to vote upon, she said she tries "to make sure that if there are any conflicts I'm aware of them," she told Sullivan. "I haven't seen any in the last five years. "

"I try to be aware of everything," she continued, "but I don't think there's been anything at the commission that I've had a conflict on that would have benefited me."

Nothing bars Texas oil and gas regulators from owning mineral interests or holding stock in companies that come before the Railroad Commission. Across at least eight Texas counties Christi Craddick, either in her own name or through Quarry LLC, has an interest in nearly 75 wells. Through her interest in Craddick Partners, she has mineral rights attached to at least 100 more well sites in Texas. Last year she received as much as $25,000 in income from Quarry and at least $25,000 through Craddick Partners.

Craddick's latest state-required financial disclosure statement was 171 pages long.

"I overreport, quite frankly," she told Sullivan.

In 2016, Craddick received as much as $10,000 in interest, dividend, royalty or rent income from Parsley, and similar amounts from a half-dozen other oil and gas companies, as well as at least $50,000 from two other oil and gas companies.

Last year, according to her financial disclosure statement, she earned as much as $5,000 from Parsley.

She told Sullivan there is no conflict of interest because she is not paid for gas that is burned.

"The mineral owners are not getting paid for that natural gas," she said.

A veteran mineral rights attorney who is not involved in the case but wished to remain anonymous because he represents clients before the Texas Railroad Commission, said the burning of gas allows the well operator to continue pumping valuable oil — and distribute royalties.

"Where there is no market or pipeline to take the gas, the well would have to be shut in if the gas can’t be flared, which would delay production of oil," the attorney said. "So landowners might be willing to put up with the flaring rather than have the well shut in."

Other states have tighter ethics restrictions regarding industry regulators. Oklahoma's Corporation Commission, for instance, requires its elected commissioners to divest themselves of stakes in any business that falls under the regulation of the commission — including oil and gas drilling.

Ethics laws are meant to stave off even the appearance of impropriety to make the public confident in government, said Adrian Shelley, director of the Texas office of the watchdog group Public Citizen.

"We want people with experience or at least knowledge about industry to be involved in regulating and decision making for that industry," said Shelley. But, he said, they should announce when they have a conflict of interest.

Speaking generally about potential conflict of interest and not about the specifics of the flaring case, Railroad Commissioner Ryan Sitton said that "any time there’s even a potential, where my personal income would be affected by a vote directly, there’s a line there, any elected official, in any office — we have to be really sensitive there."

A lobbyist

As long ago as 1997, Christi Craddick's political entanglements at the Capitol raised eyebrows. That spring, even as a bill pending before her father’s House Ways and Means committee would give hundreds of thousands of dollars in tax breaks to a planned convention center hotel in Houston, the hotel developer hired her as a lobbyist. Just a week after her father's committee approved the bill, the developer reported that Christi Craddick, recently graduated from University of Texas Law School, had been hired as a lobbyist for as much as $25,000.

“I don’t see any conflict at all,” the developer told the Houston Chronicle at the time. “I made a choice that I thought was the best for the piece of legislation that I had, someone who would work hard for it. And she is working hard for it.”

Tom Craddick co-sponsored a pipeline bill that spring that his daughter was hired to promote for an oil and gas association.

That year, the executive director of the Employees Retirement System of Texas later told reporters, Tom Craddick also initiated a change in retirement law to allow unmarried adult children of state employees — which included Christi Craddick — to receive state health insurance indefinitely.

When the allegation was made in 2002, a Tom Craddick spokesman denied he had pushed for the rule change.

The two Craddicks were connected on other pieces of legislation: In 1999, a Midland-based electric cooperative hired Christi Craddick as a lobbyist as it successfully became the only electric utility in Texas to convert into a for-profit power company while preserving its local monopoly.

The Fort Worth Star-Telegram reported that Cap Rock Electric Cooperative documents credited Christi and Tom Craddick with helping pass the necessary legislation.

From 1995 until she departed in 2002, Christi Craddick billed 28 clients a total of up to $665,000.

When her father became House speaker in January 2003, Christi Craddick said she would give up her state lobbying practice to avoid the appearance of a conflict. She took over operations of her father's campaign and a political action committee formed to protect his leadership position. The campaign and PAC paid her at least $900,000 between 2002 and 2009, the Texas Observer noted.

In 2009, Tom Craddick was toppled as Speaker. His daughter returned to lobbying, but had only one client to her name when state office beckoned.

Political career

It suddenly became a busy time — driving to a campaign event in 2011, the Houston Chronicle reported, Christi Craddick got a call from an adoption agency. Soon she was a single mother juggling the demands of an office candidate.

Her 2012 Republican primary opponent, then-state Rep. Warren Chisum, R-Pampa, was a onetime Tom Craddick lieutenant — but going up against Christi Craddick, he found himself steamrolled.

“It’s like if you were in Boston and you were running against a Kennedy,” Chisum told The Dallas Morning News that year.

Her parents contributed at least $460,000 toward her campaign, according to campaign finance records.

She easily defeated Democrat Dale Henry, a retired petroleum engineer, that year. In August 2014, her fellow commissioners elected her chairwoman.

During her tenure, oil and gas companies have benefited from her stewardship of the regulatory agency. When the industry faced a challenge from the city of Denton — voters there in 2014 approved a referendum to bar fracking in the city limits — she told federal lawmakers the ban was based on "misinformation."

"We have very vibrant rules in place," she told the U.S. House Science, Space and Technology Committee in April 2015.

State lawmakers quashed the Denton maneuver, passing a bill in 2015 that declared that oil and gas operations are the exclusive jurisdiction of the state, and prohibits cities, except in certain circumstances, from enacting an ordinance that limits such operations.

Earlier this year, the Texas Independent Producers and Royalty Owners Association presented Christi Craddick with their highest award, for “ensuring safe, responsible energy production in Texas, while reducing or removing unnecessary regulatory barriers that can restrict job growth and the energy industry’s significant impact on the Texas economy.”

But in this year's GOP primary, Weston Martinez, a water supplier in the oil and gas industry from San Antonio who styled himself a tea party Republican, called Craddick a "liberal Republican" — she had not voiced support for President Donald Trump — and accused her of turning the commission into a "D.C. type swamp."

In the late January to late February period leading to the March primary, Craddick raised nearly $460,000 — and Martinez raised about $3,000. Craddick won 76 percent of the vote to 24 percent for Martinez.

According to a July filing, the latest available, Craddick's campaign had $1.5 million on hand, much of it raised from oil and gas interests.

Her Democratic opponent, Roman McAllen, a Brownsville architect, reported in July having $1,850 on hand.

Since 2016, Tom Craddick has donated $10,000 to his daughter's re-election campaign, according to records.

Officially a sales representative for an oil field mud company, he earned at least $125,000 from positions in five oil and gas companies, according to his latest financial disclosure form. (Financial disclosure statements don't require officeholders to disclose exact amounts over $25,000, leaving how much Tom Craddick has earned from these companies a mystery.)

He also served as a board member for Mexco Energy Partners. According to company documents, he's paid $6,000 and has 15,000 shares in the company, currently worth about $80,000.

All those companies have had matters come before the Railroad Commission — and Christi Craddick.

"I am very proud of my daughter," Tom Craddick told the Statesman. "She is an outstanding Texas railroad commissioner."