From dueling ballot measures to a new czar, the battle over California oil heats up

As climate change boosts deadly heat waves, fires and flooding this summer, the clash between the seventh largest oil-producing state in the nation and the oil companies that call it home is poised to heat up at the statehouse, at the ballot box and in communities across Southern California.

At the end of August, California’s first oil czar will take the helm of a new industry watchdog agency, and soon after that oil companies will have to start handing over data on their profit margins to the state. If those margins suggest that companies are gouging drivers at the pump, a new state law says they could face hefty penalties.

By mid-October, we’ll know whether any of Democrats’ bills aimed at making oil companies and other big businesses disclose their environmental impacts get signed into law. So far this legislative session, oil companies have largely come out on top in Sacramento.

Before the end of the year, state regulators are expected to begin issuing contracts to plug inactive wells that oil companies abandoned years ago, a list that includes 30 orphan wells in Los Angeles and Orange counties. A coalition of environmental groups sent those regulators a letter Friday, Aug. 11 though, asking them to do more to hold oil companies accountable for related risks and costs.

Next fall, in 2024, the decision of whether to reign in oil drilling throughout the state will shift to voters. And they could be asked to choose between dueling ballot measures, after environmental groups filed an initiative last week to counter an industry-backed effort that’s already qualified for the 2024 ticket.

Given this landscape, it’s not surprising that new financial reports show oil interests — led by Chevron and the Western States Petroleum Association — are on track to easily beat last year’s total of $18 million spent to influence energy and climate policy in California, per data collected by a coalition of environmental groups. Oil interests might even set a new record for spending in a two-year session, despite having shrinking shares of registered lobbyists, fewer permits for new wells, and dwindling public support.

Here’s a look at the status of oil-related efforts — pro and con — and what they might mean for Californians.

Gas gouging penalties possible soon

Gas prices are creeping back up just as California’s first oil czar, who’s charged with guarding against price gouging, takes office.

Gov. Gavin Newsom signed the nation’s first gas price gouging bill last March, in the wake of record-setting prices at California pumps. The bill, which took effect in late June, created the Division of Petroleum Market Oversight to monitor gas prices and to authorize penalties against companies found to be driving up profits.

On Aug. 1, Newsom announced he’d appointed Tai Milder, an antitrust prosecutor at the U.S. Department of Justice, to head up the new agency. Milder is slated to start in that role Aug. 28, per Sandy Louey with the California Energy Commission.

But before Milder and his burgeoning team can start issuing penalties to any oil companies that they believe are inflating prices, Louey said they have to study the effects such a penalty might have. Lawmakers last year rejected Newsom’s proposal for a special tax on gas companies because they feared, as oil companies argued, that it would lead to less oil production in California and higher prices down the road.

But before the new regulators can determine how any penalties might impact the market, Louey said they’ll need to get profit margin information from oil companies. Regulators expect to get that data by Aug. 30, she said, with historic profit data for the past 10 years due by Sept. 30.

Oil refiners have been required to submit daily reports on sales and imports since July 26, according to Louey. But don’t expect to see daily sales numbers or company profit margins anytime soon; Louey said that information is considered confidential.

Meanwhile, AAA data shows the average price of regular gas in California inched back above $5 a gallon last week after peaking at $6.44 in mid-2022. Current gas prices in California are $1.26-per-gallon higher than the national average, with less than half of that — 54 cents a gallon — a result of state gas taxes.

Mixed bag in Sacramento

Legislators proposed a slew of laws this session aimed at reining in the oil industry, with mixed results so far. And much of the money oil advocates spent this year has been directed at battling these proposed laws.

Key bills that have already been killed, or at least delayed, include:

• Senate Bill 556: Would have given Californians who live within 3,200 feet of active oil wells and who develop health conditions linked to drilling — such as cancer, respiratory illnesses and birth defects — the right to hold some oil companies liable for up to $1 million.
• S.B. 252: Would have required the state’s two largest public pension funds to stop investing in major fossil fuel companies by 2031.
• S.B. 12: Would have reduced statewide greenhouse gas emissions to at least 55% below the 1990 level by the end of 2030 — up from the current state goal of 40%.

These three bills have cleared the Senate and are in the Assembly Appropriations Committee, with hearings set for Aug. 16:

• S.B. 253: Would require companies with annual revenues of more than $1 billion to disclose greenhouse gas inventories for their fully supply chains.
• S.B. 261: Would require companies with annual revenues of $500 million and above to disclose climate-related financial risks and the measures they’ve adopted to reduce those risks.
• S.B. 511: Would direct the state air board to make inventories of greenhouse gas emissions for cities and counties to use as they prepare climate action plans and take other steps to limit local emissions.

These bills must pass the Assembly by Sept. 14 to stay alive this session. They’d then need to get signed by Newsom before Oct. 14 to become law starting Jan. 1.

Nearly 400 orphan wells to be plugged

As lawmakers weigh new rules for the oil industry, California regulators are taking steps to limit the health, safety and environmental risks posed by so-called ‘orphan wells,’ or wells that companies abandon without plugging them up.

Southern California has one of the nation’s highest concentrations of orphan wells, with nearly 2,000 documented in Los Angeles, Orange, San Bernardino and Riverside counties alone. There are more than 5,000 such wells recorded statewide and tens of thousands more expected to be lurking under roads and buildings.

Newsom budgeted a historic $100 million over two years to start tackling the problem, with federal dollars also coming into the state under 2021’s federal infrastructure law. And now the California Geologic Energy Management Division, or CalGEM, has published its plan for the first phase of this work.

The plan calls for spending $80 million to cap 378 wells next year, with contracts due to be issued before the close of 2023. Most of those wells are in Santa Barbara, Kern and Ventura counties. But there are also 21 targeted for closure near St. Vincent Elementary School in Los Angeles, five in Canoga Park and one each near Brea, Huntington Beach, Long Beach and Yorba Linda. All of the wells are close to homes and other sensitive sites, CalGEM says, and many have leaked in the past.

Environmental groups say they’re happy to see the state taking action on these wells. But they’re also raising concerns about the pace of that work, and the fact that taxpayers — not the companies that profited from those wells — are footing the cleanup bill.

“It is beyond unfair to now ask the very people who have been most harmed by Big Oil to also bear the costs of their clean-up,” said Cesar Aguirre, an organizer with the Central California Environmental Justice Network.

Environmental groups, led by the Sierra Club, sent CalGEM a letter Friday asking the agency to aggressively pursue ways to make oil companies pay to plug these wells and to not issue any new well permits to companies that have deserted wells in the past.

California requires companies to plug unused wells with cement, so they don’t leak oil, gas and other chemicals. But California also is one of the few states that doesn’t require approval for companies to leave wells idle, or to limit how long wells can stay that way. Instead, companies can pay annual fees as low as $150 to keep a well “idle” and delay heftier costs to plug them.

About 40% of California’s 102,000 total unplugged oil and gas wells are now idle, per the group Consumer Watchdog. Chevron, for example, has more than 9,000 idle oil wells across the state.

To avoid those fees for an “idle” well, companies also just have to manage to pump something out every 24 months.

During this year’s second quarter, 92% of the 754 permits approved to fix existing wells were for sites that produced less than 15 barrels of crude a day, according to state data analyzed by FracTracker Alliance.

“The state is simply helping the oil industry cut costs by issuing permits to tinker with unproductive wells rather than making them plug and remediate those wells that endanger the public and environment by emitting toxic compounds,” said Liza Tucker with Consumer Watchdog.

Environmental groups argue the risks aren’t worth the minimal drop in production we’d see if all of these low production wells, known as “stripper wells,” were plugged.

Stripper wells accounted for 7% of oil produced nationally in 2021, federal data shows.

Vote on drilling near homes

While regulators approved hundreds of permits to tweak old wells across the state in the second quarter, Consumer Watchdog reports they only cleared six to drill new wells. That’s a 93% drop from the same quarter last year.

The slowdown comes after requests for new permits spiked last year, when Newsom signed Senate Bill 1137.

That bill, from Sen. Lena Gonzalez, D-Long Beach, banned new oil drilling or major retrofits to existing wells within 3,200 feet of homes, schools, nursing homes or hospitals. With the ban set to kick in on Jan. 1 of this year, Consumer Watchdog data shows there was a seven-fold uptick in new oil drilling permits issued in the fourth quarter of 2022. And nearly half, including several in Long Beach and Santa Clarita, were within the 3,200-foot setback zone.

The Center for Biological Diversity sued over those permits, and the state earlier this summer rescinded permits for nine wells it had approved near homes, a high school and a park in Santa Clarita. A lawsuit over wells approved within the setback area in Long Beach is still pending.

But while they were busy filing permit requests, oil companies also were busy gathering signatures for a ballot measure to overturn SB 1137. In February, they qualified a referendum on the setback question for the November 2024 ballot. That suspended the bill until voters could weigh in.

Then, on Aug. 2, a coalition of environmental, public health and community groups called Campaign for a Safe and Healthy California filed the Stop Toxic Oil Drilling Act of 2024. The proposed ballot initiative has the exact language of SB 1137 and, if passed, it would reinstate the 3,200-foot safety buffer zone.

Advocates of that measure could start gathering signatures this fall and would have until April to submit roughly 1 million names. The Secretary of State would then announce by June if the measure qualifies for the November 2024 ballot.

If voters were to approve both ballot measures next fall, whichever one gets the most votes should take effect at the start of 2025.

But one bill still pending in the legislature could shake up this dynamic.

Assembly Bill 421 from Assemblyman Isaac Ryan, D-Los Angeles, would overhaul the state’s referendum process, including clarifying how initiatives are worded on future ballots. Namely, it would replace a confusing process — where voters must mark “yes” to reject overturning a law — with clearer language that asks them to choose between “keeping a law” or “overturning a law.”

If that bill becomes law this fall, advocates believe it could make it tougher for oil interests to overturn SB 1137, and make the competing ballot measure — and the hefty resources it would require — less crucial.

Asked if they’d vote to support upholding the oil buffer zone, nearly two-thirds of Californians said yes in the latest poll from the California Public Policy Institute.

Source: Orange County Register