With Oil Industry in Slump, California Offers a Break on Some Well Regulations

Pump jacks in an oil field near the Kern County town of McKittrick. (David McNew/Getty Images)

State regulators have signaled their willingness to postpone a deadline for oil and gas producers to pay fees and submit plans to manage thousands of unused oil wells after an industry group asked the Newsom administration for help as it deals with the severe drop in petroleum demand due to California's stay-at-home orders.

Officials have told trade groups representing hundreds of crude oil and natural gas producers as well as some of the nation's largest fossil fuel companies that they will consider breaks for operators who can show the coronavirus crisis has created a hardship for their businesses.

"I understand that the unprecedented economic impacts associated with the COVID-19 pandemic have caused significant, unanticipated financial constraints on your members," State Oil and Gas Supervisor Uduak-Joe Ntuk wrote in letters to the groups.

Ntuk wrote to the Western States Petroleum Association and the California Independent Petroleum Association informing them of the potential for easing some regulatory requirements. State officials posted the changes in a notice to operators earlier this month.

The move came after CIPA asked the Newsom administration to delay or change 11 state requirements for testing wells and to scale back a budget proposal that would increase staff at the California Geologic Energy Management Division, or CalGEM.

The trade organization said the requirements and extra staffing, which oil and gas producers would be required to pay for, would hurt an industry suffering from huge drops in demand for gasoline and jet fuel as a result of the state's shelter-in-place orders.

The answer to the group's request on staffing at CalGEM could come this week when Gov. Gavin Newsom unveils his revised budget.

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At least one environmental organization that follows the oil industry interpreted the state's message to oil producers as promising an automatic delay in complying with regulations and offering potential future breaks.

"During this pandemic it's all the more urgent for California officials to enforce rules meant to protect our environment, health and safety from oil industry pollution," said Kassie Siegel, director of the Center for Biological Diversity's Climate Law Institute.

She urged the Newsom administration to reject future requests from fossil fuel companies.

"It's shameful that the oil industry appears willing to use the COVID-19 epidemic and economic downturn to walk away from its environmental compliance and clean-up obligations," Siegel said.

But Teresa Schilling, a spokeswoman for the California Department of Conservation, which oversees CalGEM, said the agency is only offering relief to companies that can demonstrate hardship caused by the coronavirus pandemic or the state's response to the crisis. Oil and gas operators would also have to show that the relief they're seeking won't lead to environmental harm.

"There is the possibility of a short-term extension to meet idle well requirements. But (it's) not automatic." Schilling said. "Operators have to make the case."

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CalGEM says it will consider a one-time, two-month extension for requirements to submit idle well management plans and fees. The plans and fees were due May 1. The deadline would be pushed back to July 1.

At issue are wells that have not been used for at least two years and have not yet been properly plugged, sealed and closed. State officials say there are about 35,000 idle wells in California.

A data analysis and investigation by the Los Angeles Times and the Center for Public Integrity in February found that many oil operators had not set aside enough money to ensure such wells are cleaned up and made safe.

Rock Zierman, CEO of the California Independent Petroleum Association, called the state's move a "reasonable action" that protects the economy and stabilizes its energy security.

"With these modest extensions, the state will stay on track with our climate goals and our member companies will keep oil workers on our companies' payrolls rather than on taxpayer-funds public assistance programs that are already overwhelmed," Zierman said.

Ntuk, in a statement, said the extensions did not represent a weakening of oversight.

"Recognizing that some regulated entities may need additional compliance assistance as a result of the pandemic and related market impacts, CalGEM is considering some adjustments, including extension of deadlines for submitting plans, on a case-by-case basis," Ntuk said.