1998 ANNUAL REPORT
Production

Upstream Advocacy Registers Progress at Federal, State and Local Levels

Key upstream issues required WSPA advocacy efforts in Washington, D.C. as well as Sacramento and among regional regulatory agencies this year. As can be expected in addressing such a wide variety of issues at the federal, state and local levels, there were notable successes while work on many problems must continue.

Success was achieved when the federal omnibus appropriations measure was signed into law including a measure imposing an eight-month moratorium on a proposed rule for computing oil royalties for California producers. The same bill, however, did not include WSPA supported reforms to the Endangered Species Recovery Act. WSPA and its coalition partners will likely push for these reform measures in the next congressional session.

Progress was also made on the New Source Permitting regulation, Title V coordination in the San Joaquin Valley and coastal regions, and on exempting oil field road mix from certain permit requirements. A statewide coalition made up of industry and agency representatives continued pressing the U. S. EPA to resolve issues surrounding Titles V and III, the State Implementation Plan (SIP) gap and variances impacting California. But ongoing discussions with regulators and legislators will be necessary on a number of other issues continuing throughout 1999.

Delay in Royalty Rule Achieved
In a series of hectic sessions, Congress passed the omnibus federal appropriations bill which requires postponement for eight months of Mineral Management Service (MMS) rulemaking on valuation of oil for royalty purposes.

WSPA has taken the lead in the West in supporting legislation that would require the federal government to take its royalty in-kind and market its own crude oil. The MMS argues that the current method of evaluation undervalues royalty payments to the state and federal governments.

Earlier WSPA had been successful in urging Governor Wilson to request that members of Congress support postponement. In a letter to the members, the Governor noted that a poorly designed valuation scheme might not only adversely impact government revenues, but the economies of such production dependent areas as the San Joaquin Valley and the counties adjacent to offshore facilities.

Coalition Demands EPA Flexibility
A group of California Congressional representatives has written U.S. EPA Administrator Carol Browner on behalf of the industry/agency coalition that recently traveled to Washington to resolve critical issues involving Titles V and III, SIP gap and variance impacts on California. Peter Rooney of the CalEPA also wrote to support the coalition, expressing California’s continued commitment to seek expeditious resolution of these issues. The letters requested a response from EPA on how the agency intends to move quickly in resolving the issues raised by the coalition.

Helping State Agencies Define Their Role
WSPA has submitted numerous concerns to both the California Division of Oil, Gas and Geothermal Resources (CDOGGR) and the State Lands Commission (SLC) on the direction of rulemaking to define their jurisdictional roles regarding oil facilities. WSPA has argued that regulations defining the agency’s roles must be cost-effective and have genuine environmental benefits. WSPA’s General Counsel is researching the jurisdictional issues involved and the results could serve as the basis for WSPA’s comments when the regulations are opened to public comment as well as in future legal action, if required.

Success Achieved on Road Mix Issue
WSPA scored a major success this fall when the San Joaquin Valley Unified Air Pollution Control District (SJVUAPCD) adopted language exempting noncommercial road mix facilities from permit requirements. The action capped a three year effort by WSPA to receive recognition by state and local environmental agencies that oil field road mix facilities in the San Joaquin Valley provided environmental benefits.

New Source Permitting Regulation Finalized
After nearly two years of effort by WSPA and its allies in key agricultural and manufacturing associations, the SJVUAPCD finalized a New Source Permitting regulation. The regulation addressed EPA and state concerns while adding flexibility critical to our industry‘s ability to expand operations in the future. The process involved high level meetings with EPA administrators and culminated with a signed agreement of terms between the SJVUAPCD and EPA.

Accurate Emissions Test for Heavy Oil Tanks Under Devlopment
In partnership with federal, state and local air quality regulatory agencies, WSPA is in the final stages of developing a testing method that will accurately measure vapor pressure and volatile organic compound (VOC) emissions from heavy crude oil production tanks. Called the Heavy Oil Storage Tank (HOST) Project, the effort was initiated by WSPA when the SJVUAPCD proposed additional VOC controls on these tanks. Although the project is ongoing, the effort successfully demonstrated that VOC emissions from heavy oil storage tanks are less than previously thought.

Fugitive Emission Rule Clarified
In meetings with California Air Resources Board (CARB) and the California Air Pollution Control Officers Association (CAPCOA), WSPA helped to resolve discrepancies in CARB/CAPCOA guidelines that overestimated levels of fugitive emissions from oil and gas facilities. WSPA proposed the use of a "leak, no leak" methodology that is simpler and more accurate than current approaches to determine these emissions. The association also sought resolution of other issues including the use in California of the U.S. EPA’s average emission factors and correlation equations that were adopted nationwide in 1995.

Offshore NPDES Permit Negotiations with EPA Continue
The proposed new National Pollution Discharge Elimination System (NPDES) General Permit for the Pacific Outer Continental Shelf raised numerous concerns for the industry. WSPA organized a working group to address more than 40 issues of concern in the "straw proposal" floated by U.S. EPA Region IX. The working group has been successful in providing technical information and negotiating reasonable permit rules. Throughout this effort, which will continue for about another year, WSPA members developed a professional working relationship with the EPA resulting in conditions based on good science and data. When EPA finalizes the draft permit, it must undergo review by the California Coastal Commission.

Regulatory Reform Initiative Pays Dividends
WSPA‘s initiative in intervening to "enforce" California‘s economic analysis requirements on specific regulations is paying off handsomely. By all accounts, the state administration is now implementing the most important long-range regulatory reforms sought by WSPA and its member companies that economic analyses are made of all new or amended regulations.

WSPA advocates ensured that a variety of state agencies were made fully aware of this requirement when they attempted to draft regulations on such matters as oil spill contingency plans; updates of regulatory structures; joint regulation of offshore drilling and production facilities; and inland surface water regulations.

In another joint effort with other business associations, WSPA helped to ensure permanent budget authorization for the Regulation Review Unit (RRU) within the Trade and Commerce Agency. The RRU is charged with determining whether state agencies have adequately assessed the economic and business aspects of the regulations they propose.

These efforts will continue in 1999, with the primary goal being to gain the endorsement of the incoming administration of the regulatory reform principles that have been put in place in recent years.

Companies Successfully Complete Subsea Well Capping
In a major cooperative effort, the Subsea Well Abandonment Rig Sharing Project (SWARS) in 1998 successfully sealed and removed equipment from 23 wells in state waters off the Santa Barbara County coast. Global Marine’s huge Adriatic IV drill rig was transported from West Africa for the project that was completed ahead of schedule and without major safety or environmental incidents. Additional work will be completed later next year to remove sections of pipeline in the surf zone.

Progress Made on California Waste Classification Issues
WSPA, as a leading member of a broad coalition of business interests, gained ground this year with the California Department of Toxic Substance Control (DTSC) in working toward a scientifically defensible system for classifying waste streams in the state. A formal proposal will be issued in 1999 following peer review by the National Academy of Sciences (NAS).

As a result of the coalition’s advocacy, DTSC made some significant changes to its original proposal. These changes would alleviate some administrative burdens and costs associated with management and disposal of affected waste streams and eliminate the overlapping regulatory burden associated with one of California’s most overtly conservative test methods.

Specifically, DTSC removed numeric thresholds for soluble chemicals that were on average 400 times more stringent than existing thresholds. In addition, the department agreed to replace California’s Waste Extraction Test with the less conservative federal Toxicity Characteristic Leaching Procedure. These actions substantially limit the volume of non-hazardous waste that would otherwise be reclassified as California hazardous waste.

Throughout 1998, the coalition focused its technical and public policy advocacy on improving DTSC’s approach to baseline risk assessments, recommending scientifically defensible modeling assumptions, incentives for onsite waste management, and a complete and balanced economic impact analysis. In addition, the high-level stakeholder attention given to DTSC’s activities has prompted Cal-EPA to inquire on multi-media implications and regulatory overlap and duplication.

WSPA is actively engaged in the NAS review and expects NAS recommendations will help frame waste classification regulatory reform efforts in 1999. Coalition members included the California Chamber of Commerce, California Council for Environmental and Economic Balance, California Manufacturers Association and the Western Independent Refiners Association.