California Oil Producers Fighting Newsom Proposal for Stronger Industry Oversight

Pumpjacks in western Kern County's South Belridge oil field as seen in November 2019.  (Dan Brekke/KQED)

A leading energy industry group is calling on Gov. Gavin Newsom's administration to hold off on efforts to strengthen oversight of oil and gas production in order to soften the pain fossil fuel companies are experiencing during the coronavirus pandemic.

The California Independent Petroleum Association, a trade organization representing 500 crude oil and natural gas producers, wants the administration to significantly scale back the governor's proposal to increase staff at the agency that oversees oil drilling. The organization is also seeking delays or changes in 11 separate state requirements for testing wells.

"What is at stake is much greater than the viability of local production, tens of thousands of well-paid employees, hundreds of service and supply companies, lost state and local tax revenues, but also a destabilizing of California's energy supply," CIPA CEO Rock Zierman wrote in an April 3 letter to state regulators.

Leaders of environmental groups that got wind of the association's requests are calling on California officials to proceed with plans to strengthen the California Geologic Energy Management Division, the agency that oversees oil and gas drilling.

"We urge CalGEM to reject CIPA's attempt to exploit the ongoing pandemic to loosen regulations intended to keep the public safe, protect the environment and hold oil companies financially and legally responsible for damage caused by their operations," more than a dozen environmentalists wrote in a letter to State Oil and Gas Supervisor Uduak-Joe Ntuk.

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Newsom, as part of his initial 2020-21 state budget, has proposed adding 128 analysts, engineers and geologists to CalGEM over the next three years. Oil producers would have to pay $24 million to fund the expansion.

The governor's annual revision of his initial spending plan, due on or before May 14, is expected to change significantly because of the pandemic.

The COVID-19 outbreak and its resulting shelter-at-home orders have shuttered thousands of businesses and led more than 3 million Californians to file for unemployment benefits. The abrupt economic crash has slashed tax revenue for state government.

The governor's proposal to increase CalGEM staffing comes at a terrible time for a key part of California's energy sector, according to state Senate Minority Leader Shannon Grove, R-Bakersfield.

"Right now, the price of oil is at its lowest in history, and the industry is struggling to continue operating," said Grove, who represents Kern County, the epicenter of California's oil-drilling sector, in an email.

She says adding millions of dollars in fees would destroy the state's oil producers.

"Jobs will be lost, the livelihoods of families will be affected, and one day, all Californians will wake up and realize the importance of this industry to our everyday lives," Grove said. "This latest proposal is absurd."

The shelter orders have led to big drops in demand for gasoline and jet fuel, forcing refineries throughout the state to cut production and sending the price of a gallon in California to its lowest average in more than three years.

The trend has improved air quality but hurt the state's oil industry and workforce.

Marathon Petroleum has idled its Martinez refinery. PBF Energy is selling hydrogen plants at its facility in the same city for hundreds of millions of dollars. In general, local refineries have cut more than 1,000 contract workers.

Layoffs have begun to hit some of California's oil producers as well, according to the Sacramento Bee and Los Angeles Business Journal.

"California's independent producers are experiencing unprecedented challenges," Sean Wallentine, vice president of government affairs for CIPA, wrote in a separate letter to California Natural Resources Agency Secretary Wade Crowfoot, in late March.

CIPA argued in a March 30 letter that CalGEM should fill vacant positions before adding new ones. It's also asking state regulators to delay some requirements on testing idle wells as well as new rules for existing steam injection wells.

The trade group's letters have prompted intense pushback from environmentalists who for years have called for stronger regulatory enforcement from the agency formerly known as the Division of Oil, Gas, and Geothermal Resources, or DOGGR.

"The simple truth is that CalGEM is currently dangerously understaffed," a coalition of 60 climate, health and environmental justice groups called the Last Chance Alliance wrote in their own letter to Newsom earlier this month.

The alliance says CalGEM needs the added staff to conduct basic industry oversight.

"The coronavirus outbreak and economic disruption is all the more reason to add these positions," the group's letter states.

The Newsom administration said in its January budget proposal that at current staffing levels, CalGEM is unable to perform required inspections.

"CalGEM seeks to maintain and expand an active field presence and oversee safer and more effective regulation of the state's oil and gas operations, yet is inadequately staffed to witness 100% of the operations requiring technical oversight," the governor's proposal said.

The proposal says the extra staff would improve the department's ability to monitor uncontrolled petroleum releases, known as surface expressions, like ones in Kern County's Cymric Oil Field that led to a multimillion dollar fine against Chevron last year and a state legislative hearing several months ago.

The dispute over CalGEM staffing levels comes weeks after the agency resumed granting permits for hydraulic fracturing following a nine-month pause. The agency is relying on the Lawrence Livermore National Laboratory to conduct an independent review of its pending well stimulation permits.

Environmentalists and lawmakers had criticized CalGEM in the past for handing out large numbers of fracking permits and not acting aggressively enough to force oil companies to stop surface expressions, some of which have led to the release of millions of gallons of oil.