1997 ANNUAL REPORT
Production

Regulation Schemes Keep Coming Despite Transition

Even as major changes were taking place throughout the California oil patch in 1997, it was business as usual as far as regulators were concerned, forcing WSPA, its committees and its advocates to take concerted action on both legislative and regulatory fronts at the federal, state and local levels.

The issues ranged from a proposed rule by the federal Mineral Management Service (MMS) changing the method of determining royalty payments to the detriment of California producers, to an oil property assessment controversy at the Kern County level; from a court opinion that could have invalidated existing permits under the under the California Endangered Species Act (CESA), to efforts to remove the federal exemption on exploration and production wastes.

While notable progress was made on these and other issues, much work lies ahead as the industry prepares for the inevitable challenges of 1998.

Endangered Species Act Improved

WSPA, it allies and its Sacramento advocates scored a major legislative victory with the passage of legislation amending the CESA. The bill clarified provisions of the Act that had been thrown into doubt by a Court of Appeals decision which imperiled some 140 "incidental take" permits issued by the Fish and Game Department. Also threatened by the court decision was the eight-year effort, spearheaded by WSPA, to develop a workable Habitat Conservation Plan in Kern County.

At issue was the Court of Appeals ruling that permits could only be issued for projects that had a "species benefiting purpose," rather than an "overall net benefit," which had been the criterion. Many producers have already set aside thousands of acres for wildlife protection to obtain drilling permits which would have been invalidated if the legislature had not acted. In signing the bill, Governor Wilson said that it "restored some much-needed common sense to a law that at times has bordered on the nonsensical."

Reprieve on MMS Royalty Plan

A full-court press by WSPA's Upstream Committee and others in the industry succeeded in moving the federal MMS to reopen meaningful dialogue on a proposed rule establishing valuation of California crude for royalty purposes. According to WSPA, the original MMS proposal would have established royalty payments on California crude based on a price greater than the actual value realized by the producer.

In testimony, letters and contacts with officials throughout the MMS and the Department of Interior, and ad hoc Upstream Committee group and WSPA staff opposed the MMS proposal to establish royalty valuation on a market index based on Alaskan North Slope (ANS) crude. In reopening dialogue with WSPA, the American Petroleum Institute and an industry coalition, the MMS hosted four additional workshops, one in Bakersfield, and presented alternatives to the original valuation based on the ANS crude index. WSPA is evaluating these and other creative solutions to meet MMS goals without penalizing California producers.

Offshore Studies Underway

The U.S. Environmental Protection Agency (EPA), meanwhile, has circulated for comment a proposed National Pollution Discharge Elimination System (NPDES) general permit for operations in federal waters that has received major attention at WSPA. Since the proposal contains rules that would dramatically reduce or eliminate operations offshore California, WSPA has invested some $100,000 in studies to investigate water quality, discharge and monitoring procedures on offshore platforms.

"This research will enable the industry to prove it has made significant progress in protecting the environment," said Barry McMahan, chair of the Coastal Producers Committee. "It should convince the EPA that we need reasonable regulations to continue producing oil offshore."

Onshore Spill Bill Debated

An upstream working group is attempting to clarify the jurisdiction of multiple agencies as well as notification and reporting requirements covering onshore oil spill prevention and response. WSPA has insisted that current reporting requirements do not correlate with actual or potential risk to the environment. In suggesting a new field rule on oil spill reporting criteria, WSPA argued that the requirement to report any one-barrel spill was not reasonable in the San Joaquin Valley where most of the production is heavy crude, the terrain is flat and there is a minimum potential for impacting surface waters. The WSPA recommended changes do not relieve any operator from the responsibility of immediately cleaning up all spilled oil, but they do reduce burdensome notification and reporting requirements for insignificant spills thus reducing costs to the producer.

Governor's Executive Order: A "Potent New Weapon"

When the California Office of Oil Spill Prevention and Response (OSPR) proposed new regulations to extend its authority to "non-marine transportation related pipelines" among many other things, WSPA responded by invoking a potent new weapon: an executive order signed by the governor in January. And it worked!

Governor Wilson's order required all state agencies to report on the costs and burden of proposed new regulations, why they were needed, whether they embodied the best science and how they would diverge from existing federal, state or local requirements. WSPA has used this document to challenge a number of proposed regulations of great importance to the industry including: The hazardous waste exemption for exploration and production (E&P) byproducts; the effort to apply offshore platform regulations to onshore operations; joint regulations proposed by the State Lands Commission and the California Division of Oil, Gas and Geothermal Resources for marine facilities and the Clean Fuels Outlet mandate.

In the case of the OSPR proposal, the agency withdrew the regulation and reopened discussions when WSPA informed OSPR that it had not met the requirements of the governor's order and could not proceed until the need for the new regulations and the costs of each proposed change were spelled out.

E&P Waste Exemption Involved

On the crucially-important E&P waste issue, WSPA challenged the Department of Toxic Substance Control's (DTSC) effort to redefine "hazardous waste" as lacking the test of good science required by the governor's order. The redefinition could have increased production costs dramatically by placing E&P wastes into the "hazardous" category.

In addition, classifying E&P wastes as hazardous would undercut all the good work in recent years that has allowed the use of crude oil tank bottoms as "road mix". WSPA has consistently argued, based on its research, that this material provides net environmental benefits in reducing wind-blown particulate matter at minimal cost.

Now it appears that additional work with local air districts will be required to demonstrate the insignificance of air emissions resulting from road mixing operations as compared with the net benefits. Initial research results look promising, and WSPA will continue to urge realistic state-wide guidelines and authorization for the use of these road mix materials which cause no health or safety problems for people or the environment.

Federal Efforts Triggered

On the federal level, meanwhile, the industry has been forced to counter new efforts by the EPA to revoke the exemption accorded E&P wastes under the Resources Conservation and Recovery Act (RCRA). The proposed revocation was triggered in part by law suits filed by residents of Campbell Wells, Louisiana, claiming a nearby, non-hazardous oil field waste treatment and disposal center caused health problems. WSPA has argued that the exemption is proper because these wastes do not pose a significant risk to human health or the environment and that effective state regulations are in place in California and throughout the country.

1997 WSPA Annual Report
Production