Department of Finance audit reveals oil and gas regulation violations in hundreds of permits

By Dan Bacher | 

SACRAMENTO —  Just days after California oil and gas regulators approved eight more fracking permits for Chevron this year, the state's Department of Finance released an audit detailing repeated violations of the state’s oil and gas regulations. 

The 16-day report published on the eve of the Thanksgiving holiday weekend reveals that the California Geologic Energy Management Division (CalGEM), the state’s oil and gas regulatory agency, repeatedly skipped required reviews when approving hundreds of oil and gas wells last year.

“It’s shocking to see the rampant rubber stamping of dangerous oil projects without even the basic review requirements,” said Hollin Kretzmann, an attorney with the Center for Biological Diversity’s Climate Law Institute, in a press release. “It’s absolutely reckless for Gov. Newsom to continue approving new projects when so many haven’t been properly reviewed.”

Team members who produced the audit include Cheryl L. McCormick, CPA, Chief Rebecca G. McAllister, CPA, Assistant Chief Humberto E. Cervantes, Manager Cindie Lor, Supervisor Jonathan Cox, Austin Lange and Brown Moua. 

“A detailed Corrective Action Plan (CAP), addressing the findings and recommendations, is due within 60 days from receipt of this letter,” McMormick told CalGEM. “The CAP should include milestones and implementation dates. The CAP should be sent to: After the initial CAP is submitted, DOC should update it every six months thereafter, until all planned actions have been implemented.” 

Among the “most disturbing practices” detailed in the audit is CalGEM’s use of “dummy files,” noted Kretzmann. CalGEM approved 201 wells from April to October 2019, claiming the wells were part of a pre-approved injection project. However, there was no underlying project approval or evidence of review for any of these wells.

“These included 140 cyclic steam injection wells, the type linked to several large-scale oil spills in 2019 and one oil worker’s death in 2011. The Department of Finance recommended that CalGEM cease injection activity for these illegal wells pending further review,” said Kretzmann. 

The report also revealed that CalGEM repeatedly allowed oil companies to expand or modify injection projects without further review. “In one case, CalGEM approved a 640-acre expansion, adding 400 new wells to an existing project. CalGEM ignored requirements to revise the project approval,” said Kretzmann.

The audit found additional problems in its review of 213 fracking permits issued last year. CalGEM identified multiple cases where the proposed fracking would take place close to “high risk” wells that could serve as a pathway for contamination, Kretzman stated. 

“But CalGEM approved the permits anyway, failing to explain its reasoning and failing to keep records of how and why the agency determined the wells to be high risk,” said Kretzmann.

Kretzmann said the audit’s scope did not include CalGEM’s lack of compliance with the California Environmental Quality Act (CEQA). The state regulator has issued more than 1,800 permits in 2020 to drill and frack without conducting a legally required environmental review.

The audit was released just days after CalGEM approved eight more fracking permits for the San Ramon-based Chevron. Since a fracking moratorium ended earlier this year, Newsom has to date approved 62 fracking permits authorizing 512 fracking events. 

Aera Energy received most of the fracking permits

The majority of the fracking permits went to Aera Energy, a company jointly held by Shell and Exxon Mobil. Over the past couple of weeks, Newsom has faced intense media scrutiny for ignoring COVID-19 guidelines while attending a luxury birthday dinner at the French Laundry in Napa for his close friend Jason Kinney, a lobbyist whose firm represents Aera Energy and other corporations.

“If you thought that dining with an oil lobbyist at French Laundry showed Newsom’s true colors, this audit proves you right,” said Kretzmann. “Even as his own agency is calling for illegal oil and gas wells to be shut down, Newsom and his regulators continue to turn a blind eye and hand out more dangerous permits.”

Since January 2019, Governor Newsom’s regulators have approved a total of 7,625 total oil and gas drilling permits, according to updated data from Consumer Watchdog and the Fractracker Alliance at the website:

In 2020 to date, CalGEM has approved 3,344 permits, including 1,884 new permits and 1,460 oil well rework permits. New permits approved during the first nine months of 2020 rose 160%, while new wells actually drilled plummeted, the groups found.

”New data provided by the state shows that despite the thousands of new permits issued by the Newsom Administration only 60 new wells were actually drilled in the first three quarters of 2020 – a 74% decrease over the same period in 2019 when 228 new wells were drilled,” the groups reported.

New video footage reveals leaking oil and gas wells

For the first time, the two groups also linked the map to video footage capturing leaking infrastructure at half a dozen well sites near communities that received permits under the Newsom Administration.

Majority Brown and Black frontline communities in Kern County, Los Angeles County and elsewhere are now fighting for a health and safety setback of at least 2,500 feet between homes, schools, daycare centers and hospitals and oil drilling operations.

“Videos on the site feature toxic leaking wells in South Los Angeles near Jefferson Park within 200 feet of homes, playgrounds, and a health clinic,” said Consumer Advocate Liza Tucker. “Residents there battle respiratory problems, chronic nosebleeds, skin and eye irritation and headaches.”

She said this pattern is repeated at other sites where videos show leaking operations in Carson in the City of Los Angeles, and in Long Beach where one well is located less than 70 feet from a home.  

California is one of two oil and gas producing states — the other is Alaska — that has no mandated state setback. Even Texas and North Dakota have minimal health and safety setbacks. Colorado recently increased its setback from 500 to 2,000 feet.

Neither the Governor or the Legislature have imposed health and safety setbacks around oil and gas wells, due to the millions of dollars the Western States Petroleum Association, oil companies and gas corporations have spent on lobbying the Governor’s Office, the Legislature and regulatory agencies every year and in contributions to political campaigns.

As I reported here in August, California Senate Democrats who voted with Republicans against AB 345, a weakened setbacks bill that would require  CalGEM to adopt regulations by July 1, 2022 to “protect public health and safety near oil and gas extraction facilities,” received $142,206 in donations from oil and gas corporations.

Senate Majority Leader Bob Hertzberg, Senator Anna Caballero and Senator Ben Hueso joined Republican Senators Andrea Borgeas and Brian Jones to defeat the legislation in a 5 to 4 vote in a Senate Natural Resources and Water Committee hearing on August 5:

Those regulations would include “safety requirements and the establishment of a minimum setback distance between oil and gas activities and sensitive receptors, as provided, based on health, scientific, and other data.” They would also “consider a setback distance of 2,500 feet from schools, playgrounds, and public facilities where children are present.”  

But at this time, California doesn’t have even the minimal health and safety setbacks that Texas and North Dakota have around oil and gas wells and fracking operations. And if the results of the recent audit are any indication, the state often fails to follow its own regulations and rules even when they are in place.

Background: Big Oil Regulatory Capture in California

The reason why the Newsom administration is approving increasing numbers of oil and gas permits at a time of an unprecedented pandemic is due to the uncomfortable fact that the oil industry is the most powerful corporate lobby in California and exercises enormous influence over the Governor’s Office, the State Legislature and the State’s regulatory panels, commissions and panels.

Last year the Western States Petroleum Association, the most powerful lobbying organization in the state, pumped more money into lobbying than any other organization in California, spending a total of $8.8 million. The San Ramon-based Chevron pumped the third most money into lobbying, a total of $5.9 million. The lobbying expenses of the two oil industry giants came to a total of $14.7 million.

During the first quarter of 2020, at the same time that the Newsom Administration approved 1,623 total oil drilling permits, the Western States Petroleum Association (WSPA) spent $1,089,702 lobbying state officials.

Chevron spent even more: $1,638,497 in the first quarter of 2020 to influence legislators, the Governor’s Office and other state officials. The two oil industry giants combined to spend a total of $2,728,199 lobbying from January 1-March 31.

In the second quarter of 2020, WSPA spent $1,220,986 while Chevron spent $974,322 on lobbying in California, a total of $2,195,308.  

In the third quarter of 2020, WSPA spent $1,169,397 while Chevron pumped $752,437 into lobbying.

Aera Energy — the company that the majority of fracking permits approved this year have gone to — spent a total of $672,604 lobbying California officials in 2019. In 2020 to date, Aera spent $290,826 on lobbying from January 1 to March 31, $191,660 from April 1 to June 30, and $200,082 from July 1 to September 30, a total of $682,028, more than all of last year.

In addition to spending hundreds of thousand of dollars every quarter on lobbying, Aera Energy also has deep connections to Governor Newsom’s Office. “Aera has well-connected lobbyists in its corner who work for the firm Axiom Advisors,” according to Steve Horn in his June article in Capital and Main:

“One of them, Jason Kinney, headed up Newsom’s 2018 transition teamand formerly served as a senior advisor to Newsom while he was lieutenant governor. He is also a senior advisor to California’s Senate Democrats,” wrote Horn. “The other, Kevin Schmidt, previously served as policy director for Newsom when the latter was lieutenant governor. Aera paid Axiom $110,000 for its lobbying work in 2019 and, so far in 2020, has paid $30,000, lobbying reports reveal.”

Lobbying is just one of the seven methods that Big Oil uses in California to exercise inordinate influence over California regulators. WSPA and Big Oil wield their power in 7 major ways: through (1) lobbying; (2) campaign spending; (3) serving on and putting shills on regulatory panels; (4) creating Astroturf groups; (5) working in collaboration with media; (6) creating alliances with labor unions; and (7) contributing to non profit organizations. 

A classic example of deep regulatory capture in California is how Catherine Reheis-Boyd, the President of the Western States Petroleum Association, chaired the Marine Life Protection Act (MLPA) Initiative Blue Ribbon Task Force to create “marine protected areas” in Southern California at the same time that she was lobbying for new oil drilling off the West Coast. Yet corporate “environmental” groups strongly supported the oil lobbyist-led process, claiming it was “open, transparent and inclusive” when it was anything but.

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