California Announces “Independent Reviews” for New Hydraulic Fracturing Permits, Audit of Current Permit Approval Process
On November 19, 2019, the California Department of Conservation’s Division of Oil, Gas and Geothermal Resources (“DOGGR”) announced that all new permits for well stimulation operations such as hydraulic fracturing must be reviewed by third-party, independent scientists “to ensure the state’s technical standards for public health, safety and environmental protection are met prior to approval of each permit.” These reviews will be conducted by experts at the Lawrence Livermore National Laboratory in Livermore, California.
The requirement for independent reviews is a temporary measure pending a broader overhaul of California’s well stimulation permitting regime, which arises out of recent legislation that revised the name and mission of DOGGR, which will be renamed the Geologic Energy Management Division, or “CalGEM,” effective January 1, 2020. Similar to Colorado’s S.B. 19-181, California’s A.B. 1057, which was signed into law in October 2019, also specifically requires that CalGEM’s mission include “protecting public health and safety and environmental quality, including reduction and mitigation of greenhouse gas emissions associated with the development of hydrocarbon and geothermal resources in a manner that meets the energy needs of the state.” DOGGR began a review of its process for approving well stimulation permits in July 2019, after it was reported that the issuance of such permits had doubled since Governor Newsome took office in January 2019. More recently, DOGGR requested an independent audit of its permitting processes for well stimulation and underground injection control by the California Department of Finance’s Office of State Audits and Evaluations.
In addition to this ongoing review of well stimulation permitting procedures, DOGGR announced a new rulemaking effort aimed at strengthening protections for public health and safety near oil and gas extraction facilities. The rulemaking process will begin in 2020 with “a series of pre-rulemaking workshops with interested parties to seek input on the best ways to protect human health through new rules.” A variety of environmental and public health authorities are expected to consult on the forthcoming rulemaking, including the California Department of Public Health and the California Environmental Protection Agency. Finally, DOGGR also announced a moratorium on new extraction wells that use high-pressure cyclic steaming to break apart underground geological formations to extract oil, a process that has been linked to recent oil leaks in Kern County, California.
It remains to be seen how the independent panel will implement its new authority to evaluate well stimulation permits pending California’s continuing review of its permitting processes. To the extent that this review recommends regulatory changes to California’s permitting regime, such changes would require a future notice and comment rulemaking. In the meantime, operators should prepare to engage in the forthcoming rulemaking effort relating to protections for public health and safety near oil and gas extraction facilities. As Colorado’s failed Initiative 97/Proposition 112 demonstrated in 2018, measures as simple as increased setback distances can have devastating effects on the percentage of surface lands available for production.
Read DOGGR’s announcement in full here.
Texas Publishes Proposed Safety for Rural Gathering Pipelines
The Railroad Commission has formally proposed rules that would add safety requirements for rural gathering pipelines. The action is far narrower than the draft rules that the Railroad Commission proposed this summer for informal comment. Historically, rural gathering pipelines have been largely unregulated. This summer’s draft proposal would have imposed on rural gathering lines broad proscriptive requirements related to corrosion control, damage prevention, public education, line marking, and leak surveys above and beyond rules recently finalized by the federal Pipeline and Hazardous Materials Safety Administration. The potential major change drew significant industry attention and many informal comments, both in writing and at a public meeting, including comments that the draft rules were not tied to identified public safety risks.
At its October 1 meeting, the Commission formally proposed safety rules that are far narrower than the draft proposal this summer. Rather than the proscriptive requirements proposed in draft this summer, the current proposed rules would instead subject pipeline operators to a general performance standard – operate in a “reasonably prudent manner to promote safe operation” – and the following incident related requirements:
- Report incidents and accidents to the Commission (16 TAC 8.110(c));
- Conduct investigations after incidents or accidents and cooperate with the Commission during a Commission investigation (16 TAC 8.110(d)); and
- Submit, at the Commission’s request, corrective action plans to remediate accidents, incidents, threats to the public, or complaints (16 TAC 8.110(e)).
The proposed rules align with H.B. 2982 (2013), which authorizes Commission rulemaking for rural gathering pipelines “based on the risks the transportation and facilities present to the public safety.” Indeed, the Commission acknowledged in the preamble to the proposed rules that it “has recognized the need to compile more accurate and complete information regarding the incidents and accidents that are occurring on gathering systems located in Class 1 locations and rural areas.” That said, the Commission also expressed its belief that these new reporting, investigation, and corrective action requirements “will allow the Commission to gather accurate data and analyze trends in incident or accident occurrences,” permitting it “to more thoroughly assess the risks [that rural gathering pipelines] . . . present to the public safety.” Thus, the data the Commission intends to gather could provide the Commission with the legal basis for a more expansive rule package in the future.
The proposed rules were formally published in the Texas Register on October 18, opening a 30-day public comment period.
California Legislature Looks to Colorado in Considering Increased Setbacks
On April 22, 2019, the California Assembly’s Natural Resources Committee passed Assembly Bill 345 (“AB 345”), which, similar to Colorado’s failed Proposition 112 ballot initiative, would require that all new oil and gas development and rework operations on non-federal land be located at least 2,500 feet from any residences, schools, childcare facilities, playgrounds, hospitals, and health clinics. These requirements would take effect beginning on January 1, 2020. In addition, the bill authorizes cities and counties to impose setback requirements even greater than the 2,500-foot base requirement.
The bill includes a variance mechanism whereby operators could obtain a reduction to the “maximum achievable” setback distance where necessary to access legal subsurface rights. Applications for a variance must include “competent, substantial, and relevant evidence” demonstrating, among other things, that the proposed variance is “consistent with the intent” of AB 345 and “protect[s] public health and safety.” Such variance requests would be subject to review by the state’s Oil and Gas Supervisor. However, an analysis prepared by the Assembly’s Natural Resources Committee observed that “it is unlikely the variance could ever be used” because, counter to the requirement that a variance be “consistent with” AB 345, the bill explicitly declares that “[p]roximity to oil and gas extraction, including the use of hydraulic fracturing, well acidization, and other nonconventional oil and gas extraction techniques, adversely impacts public health and safety.”
As was the case with Proposition 112 in Colorado, implementing the requirements of AB 345 could have a devastating impact on new oil and gas exploration and production activities in California, which currently ranks fourth among states in annual oil production. The Natural Resources Committee’s analysis states that even a lower 1,500-foot setback from only residential developments would have affected 65 permits issued in Los Angeles County alone in 2018. Even more troubling for California operators is the Committee’s observation that, as currently drafted, the “definition of new oil and gas development and rework operations may capture any permit necessary to keep existing wells producing.” The California Division of Oil, Gas, and Geothermal Resources issued 1,100 such permits last year, amounting to 15% of the total permits it issued. Similarly, the Committee found that AB 345’s definitions of “oil and gas development” and “rework operations” subject to the setback requirement could include routine repairs, the addition of new flowlines, or additional treatment of waste.
The bill will now move to the Committee on Appropriations for further consideration. Should the bill advance out of committee, it would move to the Assembly for further readings and a vote. To become law, the bill must be passed by the Assembly and Senate, and then approved by the Governor, who can either sign the bill into law, or allow it to become law without signature. Read the current text of AB 345 in full here.
Finally, AB 345 was not the only bill affecting the oil and gas industry to advance out of the Assembly’s Natural Resources Committee on April 22. The Committee also passed AB 1440, which would again borrow from Colorado by eliminating language encouraging the development of oil and gas resources from the statutory mandate of the California’s Oil and Gas Supervisor. Colorado, of course, recently enacted legislation that revised the mandate of the Colorado Oil and Gas Conservation Commission to focus primarily on the protection of public health and the environment, rather than “fostering” the development of oil and gas resources. Like AB 345, AB 1440 will now move to the Committee on Appropriations for further consideration. Read the current text of AB 1440 in full here.