Wednesday, Nov 21 2012 05:57 PM

Oil czars say California's rules are outdated

BY JOHN COX Californian staff writer jcox@bakersfield.com

Admitting that an agency founded nearly 100 years ago has failed to keep up with changes in how oil and gas is brought out of the ground, the state's top oil regulator has said in a long-awaited letter that changes are necessary that could increase the cost of local oil production.

New regulations, additional staffing and possibly new legislation are needed to address federal concerns that California oil field practices do not adequately protect groundwater, said the letter by State Oil and Gas Supervisor Tim Kustic.

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EPA, California have different takes on key issues

The Environmental Protection Agency has raised several key issues with California's oil regulators:

Water quality

The EPA commissioned a March 2011 audit report by Massachusetts-based Horsley Witten Group Inc. It raised concerns that California is not living up to federal requirements that water containing up to 10,000 milligrams per liter of dissolved solids be protected as potential drinking water. It found California's definition to be more lenient at 3,500 milligrams per liter.

California's oil industry claims the federal standard is impractical and could jeopardize oil operations in western Kern County, where the groundwater is generally undrinkable but within the federal definition of a resource requiring protection.

State Oil and Gas Supervisor Tim Kustic responded but sidestepped the protected water definition, instead emphasizing California's guiding principle to injection oversight: Make sure anything pumped underground stays in the intended geologic zone and does not "migrate" outside of it.

Kustic's letter goes on to say that rulemaking expected to begin next year will consider new well plugging and cementing requirements as a way of protecting zones with drinking water.

Study areas

The audit report also called for closer monitoring of pressure levels inside injection wells, adding that California regulators should at times widen their study area beyond the typical quarter-mile radius around injection wells.

In his response, Kustic acknowledged limiting reviews to a quarter mile around wells but explained that the division conducts a variety of tests within that area, including pressure checks. The division also requires periodic mechanical integrity testing of wells, he noted.

Staffing needs

An area in which the auditors and Kustic are in general agreement is the need for more and better staffing and training within the state Division of Oil, Gas and Geothermal Resources, known by its acronym, DOGGR. They say improvements would lead to more frequent and better well tests.

The division has added 43 positions to its staff in recent years, and the industry, which pays fees that directly fund jobs at DOGGR, has supported still more hiring.

An executive at the Western States Petroleum Association, a major industry group active in California, wrote in an email that it has worked with DOGGR to ask the Legislature for authority to do more hiring. He said increasing personnel ensures that the agency "has the resources to process applications and the technical expertise to manage the division's programs."

Cyclic steaming

A subject not mentioned in the federal audit but which Kustic brought up in his response was cyclic steam injections, also known as "steam fracking." DOGGR has said such activity was at least partly responsible for the sinkhole death of a Chevron supervisor and subsequent eruptions of rocks, oil, water and steam at Midway-Sunset in June 2011.

Since then the division has monitored the performance of such wells and is working with industry to manage them more closely. Kustic said in his letter that the division intends to address new cyclic steam well testing measures in rulemaking next year.

One proposed change to cyclic steaming, mentioned at the industry meeting in Bakersfield in September, was permanent installation of well pressure gauges. Kustic repeated this in his letter to the EPA.

Idled wells

His letter also discusses the need for new rules and additional money to keep on top of the "excessive number" of idled or abandoned oil wells, which the audit report said should be tested and possibly repaired and plugged.

While state law requires well operators to post bonds to ensure oil field safety, Kustic wrote that the bond amounts are "outdated and therefore insufficient." He stated that the agency would work with lawmakers and industry "to bring bonding requirements up to reasonable standards."

-- John Cox

Sent last week to the U. S. Environmental Protection Agency's Ground Water Office in San Francisco, the letter provides new details on California's evolving approach to underground waste disposal and other injection well operations.

It concedes that the state Division of Oil, Gas and Geothermal Resources, known as DOGGR, has failed to keep up with industry progress since the agency's founding in 1915.

"With changes in oil field practices and advancements in technology, the division has been slow to change its regulatory framework," he wrote. "Although the division has a strong regulatory program, the division is pursuing greater and more consistent enforcement."

By virtue of Kern County's vast oil reservoirs, any changes to California's injection program would be felt more keenly here than anywhere else in the state.

Kustic's letter largely mirrors plans he shared publicly at a Sept. 20 meeting in Bakersfield with oil industry representatives wary of changes to longstanding practices.

Just last year oil companies' complaints about state injection project reviews led to upheaval in Sacramento. But this week industry groups voiced support for staffing increases called for in Kustic's letter, and they indicated a readiness to work with the state on any proposed rule changes.

"We are always willing to look at sensible new regulations when they are needed," Rock Zierman, CEO of the California Independent Petroleum Association, wrote in an email.

Underground injection wells are crucial to local oil operations. They are typically used to dispose of toxic fluids and gases that come up during pumping.

Many of these injected materials exist underground naturally, though they sometimes include chemicals pumped underground as part of hydraulic fracturing, or "fracking," an increasingly popular technique credited with spurring the domestic oil and gas boom. Underground injection as a regulatory category also includes cyclic steam injection, a process pioneered in Kern County and widely used locally to produce heavy oil in the prolific Midway-Sunset and other oil fields near Taft.

Kustic and his boss, Mark Nechodom, director of the state Department of Conservation, have stepped carefully with regard to injection wells, winning industry praise for their flexibility and outreach. The timing of Friday's letter, delivered 16 months after the EPA requested it, likely reflects their sensitivity.

Kustic and Nechodom's deliberative approach is not coincidental. Gov. Jerry Brown ousted their predecessors last fall amid loud complaints by industry and Kern County politicians that unprecedented scrutiny by state regulators starting in 2009 was delaying injection well projects, costing many local workers their jobs.

Renewed discussion of how California should oversee injection work has come at an unusually busy time for state oil regulators.

Under pressure from legislators and environmental groups, Kustic and Nechodom have spent much of the past year considering new rules for fracking, which is related to underground injections but classified separately. The Department of Conservation plans to release proposed fracking regulations by year's end; this would kick off a rulemaking process that Nechodom has said would come before any new underground injection rules.

Much of the impetus for California's re-examination of injection wells permitting began with the U.S. EPA. Last year the agency released audit results concluding that many of California's injection rules and practices are at odds with stricter federal guidelines. (See box.)

David Albright, manager of the EPA's Ground Water Office in San Francisco, said he was satisfied with the direction Kustic's letter points to, and said his staff will likely offer input as the state moves toward updating its rules on injection projects.

He predicted that DOGGR will take industry concerns into account along the way.

"I don't think the industry needs to be nervous about what the Division of Oil and Gas is talking about here," Albright said.

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