As California Oil Regulator Seeks More Money, Legislators Ask 'Is This Working?'

Early in 2011, Bill Allayaud was so fed up with what he saw as dereliction of duty by California’s oil and gas regulator that he began to catalog grievances: unregulated fracking, allowing companies to inject oilfield wastewater into clean water aquifers, little or no oversight into critical practices affecting public health and safety.

“They were essentially lap dogs for the oil industry,” said Allayaud, a lobbyist with the Environmental Working Group.

He attached the ever-expanding list to his office wall. With the way things had been running at the Division of Oil, Gas and Geothermal Resources, Allayaud had little confidence the list would ever grow smaller or come down.

“This was a backwater agency in charge of multibillion-dollar corporations,” he said. “It was a wink and a nod, that’s the way it went for decade after decade.”

California’s oil and gas regulator, known as DOGGR, has endured years of scolding from the Legislature for a lack of accountability, from environmentalists for allowing an industry to run roughshod over a state regulator and from the federal Environmental Protection Agency for failing to enforce clean water laws.

But the state’s oil watchdog is undertaking a comprehensive reform, officials say, that will radically change the agency’s culture and modernize a department with one foot in the last century.

“We are a dramatically different organization than we were three years ago,” said David Bunn, director of the state Department of Conservation, which oversees the oil and gas agency. “We’ve made dramatic changes. There’s still a lot to do.”

Agency officials will make that case in coming weeks as they appear before a budget committee in the California Legislature, requesting more money and more people to complete the transformation.

Their requests will likely face some skepticism.

“It’s a chicken and egg thing,” said Sen. Hannah-Beth Jackson, a Democrat from Santa Barbara. “We don’t want to give them money unless they are going to produce; they say they can’t produce unless we give them more money. The truth lies in between.”

Few would dispute that the agency has been in crisis. Created more than 100 years ago, the Division of Oil, Gas and Geothermal Resources regulates energy extraction on state lands and in state waters. It has a staff of about 275 and a proposed budget of about $85 million.

For decades, though, the agency served more to assist energy companies than regulate them. That emphasis has proven difficult to shake.

A litany of embarrassing lapses and mistakes in recent years brought a harsh spotlight to the agency’s inner workings. Oil companies were dumping oilfield waste fluids into thousands of unlined pits in the Central Valley and injecting that same waste into federally-protected drinking water aquifers.

The death of a worker at a Chevron facility near Bakersfield in 2011 drew attention to a dangerous well stimulation technique known as underground injection. Steve Bohlen, a former state oil and gas supervisor, admitted the agency did not have up-to-date guidelines to adequately oversee underground injections. He said his agency asked an oil industry group—the Conservation Committee of California Oil and Gas Producers—to write the outlines of the regulations. The group didn’t produce a document.

“One of the big frustrations I’ve had with DOGGR is they have been more a shill for the industries they are supposed to be regulating than a real enforcer of the industries,” Jackson said.

“For many years, DOGGR has seen its mission to accommodate oil development. They’ve finally started to pivot.”

State Sen. Bob Wieckowski, the Fremont Democrat who chairs the subcommittee that will hear the upcoming funding proposals, agreed that the oil agency went through “dark days,” but he said he’s hopeful that meaningful change has arrived.

“If ever there was an agency or department that needs to be more transparent, this is it,” he said. “I’d like to improve the trust that the community and the Legislature has with the department. We’ve got twin aims: transparency and accountability.”

The department has been a frequent supplicant before the budget committee, offering mea culpas along with requests for more funding to implement reforms called for by the Legislature.

After fitful attempts at reform, the agency is well into its renewal plan—a comprehensive, and expensive, blueprint to overhaul the state’s oil and gas regulator.

In the last five years, the oil agency has received nearly $25 million in ongoing funding, above and beyond its enacted budget, and tens of millions more in one-time outlays to kick start projects, ranging from developing a statewide database of oil and gas operations to hiring a new generation of field inspectors.

On top of that, the Legislature has approved an additional 150 permanent positions in the last five years, according to information the non-partisan Legislative Analyst Office provided to legislators, effectively doubling the agency’s employee base.

One of the biggest lifts has been converting an agency that, until recently, operated almost entirely on paper. The IT bill for installing a modern data management system and converting handwritten well records that date back to the 19^th century: nearly $70 million.

Bunn said one of the budget requests will be to hire 21 additional inspectors. He said the current workload is untenable, with one inspector per 2,800 wells.

It’s a critical point. The agency is lagging in performing inspections required by state law. An LAO analysis found that in California’s three busiest oil-producing districts, state inspectors failed to oversee nearly a third of required operations last year.

Bunn acknowledged oversight failings, saying the problems went beyond missing inspections: “We were sending people out to do inspections who were not qualified,” he said.

Bunn said the agency has instituted an extensive training program and aggressively seeks employees with higher academic qualifications.

In recent years, he said, top-flight engineers and others with sophisticated training shunned the agency, which was viewed as not placing a high value on science.

“We’ve dramatically reformed our practices in the field,” he said. Now, “good people attract good people.”

The agency’s former aversion to science has led to partnerships with the state’s national research labs.

One project with Stanford University tackles one of the most fundamental and significant problems in oilfields: What causes so-called “surface expressions” when steam, oil or drilling fluids bubble up or erupt to the surface, creating anything from fissures to oil-filled caverns.

“We never did that kind of thing before,” Bunn said. “We didn’t have the capacity, the time or the people to do it.”

In the past, the state relied on the oil industry to take the lead on crafting regulations, deferring to its technical expertise.

“We’ve played a constructive, collaborative role in these many years,” said Bob Poole, a lobbyist with the Western States Petroleum Association. “We’ve helped them find the best ways to address the legal mandates to implement regulations.”

That collaboration sometimes veered into potential conflict.

That, too, has changed, officials say. The agency said the draft regulations for underground injections were formulated by agency staff, in consultation with independent scientists. And it noted that it hopes to beef up enforcement staff.

The energy industry has its own complaints, mostly to do with what it views as the state’s snail’s-pace in signing off on permits and other paperwork requiring decision-making.

The addition of the state water board into oil and gas oversight has added a layer of bureaucracy that the industry says is causing the system to creak to a halt.

“DOGGR and the water board need to ensure that they review permit applications in a timely manner,” said Rock Zierman, chief executive officer of the California Independent Petroleum Association, in a statement.

Bunn said the agency is getting to all of the issues, ticking them off a long list.

As for Allayaud’s list?

“They are so antiquated, they are still playing catch up,” he said. “But I keep putting checkmarks next to things.”

This is an abridged version of the full story, which is available at CALmatters.org—a nonprofit, nonpartisan media venture explaining California policies and politics.