Governor Proposes Big Changes for California Oil Producers

Governor Gavin Newsom has floated significant changes to how oil production is permitted in California. Environmental groups leaked language to the media last week drafted by the governor’s office which would form a budget trailer bill on production and would be considered by the legislature when they return from summer recess in late August.

Key Takeaways:

• The bill would codify the Kern County Oil and Gas Ordinance and companion EIR as California Environmental Quality Act (CEQA) compliant.

For the past 10 years, Kern County has been pursuing a new oil and gas ordinance backed by a comprehensive Environmental Impact Report (EIR) that runs more than 30,000 pages long. When it was displayed at the Kern Board of Supervisor’s meeting where the board adopted the newly revised ordinance and EIR, the binders containing the science, data, studies, and analysis of the ordinance and its environmental impacts were more than 15 feet wide. Make no mistake: codifying the Kern Ordinance and EIR by no means represents any exemption from CEQA. The state would merely be recognizing that the 89 mitigation measures contained in the ordinance sufficiently achieve environmental compliance.

Thousands of permit applications for new wells and new injection projects have languished for years at CalGEM. Kern County is seeking lead agency status for CEQA because of this inaction. This came about after CalGEM largely stopped defending its permitting practices a decade ago. Prior to that, CalGEM (then DOGGR) approved thousands of permits annually with a fraction of the staff they have today. Last year, they only approved 48 permits for new wells. This is the reason the state’s production is cratering.

• Well stimulation would be permanently banned, retroactive to 2021.
  

California does not currently have a ban on well stimulation. California has SB 4, the most comprehensive well stimulation regulatory process in the world. Even Governor Newsom publicly stated that he did not have the authority to ban well stimulation given the passage of SB 4. Unfortunately, the administration has pursued an illegal ban that is now the subject of litigation.

No harm from well stimulation has ever been demonstrated in California. The state would be ill advised to curtail known, routine operations like well stimulation at the same time it is scrambling to stop the precipitous decline in in-state production.

• Pipelines idle for 5+ years must pass expensive pressure tests before restarting. This is designed to shut down offshore production, particularly Sable’s project in Santa Barbara County. Again, if the goal is to stabilize and even increase in-state production, shutting down offshore production is a step backwards.

• 2 for 1 CEQA Exemption Proposed: Outside Kern County or any existing CEQA compliant operations, operators could elect to obtain an exemption from CEQA if they meet certain criteria such as 1) drilling is inside an established oil field, 2) there are no endangered species present, 3) the operator agrees to plug one well inside that oil field and another inside a health Protection Zone anywhere in the state. This option would not be mandatory, simply an option for producers. Given that the average plugging job costs $51,000, the exemption would cost the applicant roughly $102,000 or more per well drilled. The costs of avoiding CEQA permitting and litigation would have to exceed that amount for an operator to choose this option.

• Bonding, spill planning, and financial disclosures all have the potential to go up.

• Coastal permitting just got harder. New pipeline requirements. Old facilities face new permit triggers.

There are important elements missing from the trailer language, including fixes to the SB 1137 setback, fixes to AB 1167 bonding for acquired assets, and timing of permit expiration. CIPA has been advocating for this comprehensive package to truly unleash the potential of in-state production to curtail refinery closure and gasoline price spikes. Read CIPA’s response to the CEC here.

CIPA has been and will continue meeting with legislators over the break regarding amendments to the Trailer Bill Language and how other bills can be used to achieve these goals.