Federal Lawsuit Pushes Back on California’s “State Overreach” on Federal Lands

In a significant and welcome development for California energy producers, the U.S. Department of Justice (DOJ) announced it has filed suit in federal court challenging California’s SB 1137 as an unconstitutional attempt to regulate oil and gas development on federal lands. DOJ’s complaint, filed by the Environment and Natural Resources Division in the U.S. District Court for the Eastern District of California, targets SB 1137’s 3,200-foot “Health Protection Zone” setback and argues that federal law preempts California’s effort to block development authorized under federal leases.

DOJ did not mince words, stating SB 1137 would “knock out about one-third of all federally authorized oil and gas leases in California,” and the Department is seeking both a declaration that the law is unconstitutional and an injunction to stop enforcement, along with a planned preliminary injunction motion “in the coming days.”

CIPA CEO Rock Zierman welcomed DOJ’s engagement and tied it directly to the broader pattern producers have faced in California:

“Just as the state has tried to shut down duly permitted in-state production on private land in violation of the fifth amendment of the US Constitution, so too has the state tried to usurp federal law by shutting down production of minerals owned by the US taxpayers. We welcome the US Department of Justice joining our fight against these illegal actions that are leading to increased foreign imports and higher gas prices.”

The backdrop: SB 1137 was rushed, sweeping, and still disputed in court

SB 1137 was pushed through in the closing days of the 2022 legislative session and created a 3,200-foot setback around “sensitive receptors,” sharply restricting new drilling in the zone and imposing major compliance requirements on existing operations.

Separate from DOJ’s federal action, the Native Oil Producers and Employees of California (NOPEC) and a group of California mineral owners have filed state-court challenges to SB 1137, arguing the policy is arbitrary, unsupported by California-specific proof of causation, and amounts to an unconstitutional taking.

These cases put the state’s “science” claims under a microscope. Plaintiffs argue the state leaned heavily on generalized studies, many from outside California and some involving practices not representative of California operations, while discounting California-specific evidence and the state’s already stringent regulatory framework.

Why this matters: California demand is real, and supply is increasingly imported

Whatever anyone’s policy dreams may be, California still runs on petroleum. EIA reports California petroleum consumption at 648 million barrels in 2023, about 1.8 million barrels per day when averaged across the year.

Meanwhile, California’s in-state crude production has materially declined. EIA’s California crude production data shows roughly 430 thousand barrels per day in 2019, versus about 254 thousand barrels per day by September 2025. That gap does not disappear; it gets filled by imports, often arriving by tanker.

The California Energy Commission (CEC) has documented the growing reliance on foreign crude in the refinery supply mix. In its “Petroleum Watch,” CEC reported that in 2021, 56.2% of crude oil processed in California came from foreign nations (with California and Alaska at 43.8%). CEC’s import breakdown also shows the major foreign sources supplying California refineries.

Producers have long warned that policies like SB 1137, by restricting new wells and even routine maintenance in wide swaths of the state, push California further toward a “tanker-first” energy posture. This results in more imports, more exposure to global volatility, and higher costs for families already paying the nation’s highest gasoline prices.

A second-order impact: housing and land-use complications

SB 1137’s designation of broad areas as “Health Protection Zones” also creates a very real concern for housing development and liability exposure near legacy oil fields, especially in parts of Southern California where developable land is already scarce. Stakeholders warn that if the state effectively labels large areas as incompatible with proximity to wells, it can chill housing proposals and complicate entitlement decisions even where projects are otherwise planned and needed.

CIPA will continue tracking both the federal case and the state-court challenges closely. For members with federal-land operations, this is an important moment: DOJ is not just filing paperwork, it is drawing a bright constitutional line and saying, in effect, federal lands are not Sacramento’s jurisdictional playground.