Business

Friday, Nov 04 2011 08:31 PM

Kern lawmakers, industry pressured governor to oust state's top oil regulators

BY John Cox Californian staff writer jcox@bakersfield.com

An intensified campaign by Kern County lawmakers, together with local oil producers' alarming statements to Wall Street, may have been the final straw for two top state regulators who had become a thorn in the side of the county's powerful drilling industry.

Interviews show that Democratic state Sen. Michael Rubio and Republicans Rep. Kevin McCarthy, state Sen. Jean Fuller and Assemblywoman Shannon Grove engaged the governor personally over a permitting backlog they say has stalled local job growth.

"That's not something you just ignore," said Cathy Reheis-Boyd, president of the trade group Western States Petroleum Association.

She and others said it was no coincidence that Elena Miller's ouster Thursday as state oil and gas supervisor came just a week after the top executives at Los Angeles-based Occidental Petroleum Corp. and Denver's Berry Petroleum Co. said they faced slowdowns in getting permits from California regulators -- a reference to Miller's Division of Oil, Gas and Geothermal Resources.

Miller's boss, Derek Chernow, acting director of the state Department of Conservation, also was removed and replaced on an interim basis by Cliff Rechtschaffen, a senior energy, environmental and agricultural advisor to the governor's office.

Close involvement by Kern politicians and businesses comes as no particular surprise given the oil industry's towering presence in the county. Even so, it highlights the degree to which business interests command the attention of local elected officials.

The challenge now, lawmakers and industry leaders say, is to make sure that Miller's successor -- whoever that person ends up being -- works together with business to present a clear path to approval for oil field projects that are critical to sustaining and expanding the state's petroleum production, as well as the jobs and tax revenues that go with it.

A rocky term

Industry has complained about Miller almost from the moment former Gov. Arnold Schwarzenegger appointed her in September 2009. Unease with her leadership mounted early this year as oil producers wrestled with a growing backlog of applications for underground injection projects.

Such projects range from oil field waste disposal to steam fracturing activity. Without permits, some operations have come to a standstill, idling well rigs and other service crews that account for hundreds if not thousands of local jobs.

Miller blamed the backlog on the need for more in-depth technical reviews to make sure injections do not end up polluting underground sources of drinking water. She has also taken away the discretion traditionally exercised by Bakersfield-area employees of her agency, prompting accusations that permitting decisions were being made by inexperienced staffers in Sacramento.

For several months, Kern lawmakers have agitated for a resolution. Additionally, Rubio proposed a law that would give Miller's agency, known as DOGGR, specific authority to regulate waste gas injections.

More recently, McCarthy, Fuller, Grove and Rubio began focusing sharply on the effect the backlog was having on employment and government tax revenues, said Rock Zierman, CEO of the California Independent Petroleum Association.

"I think the potential job losses, economic job losses, the potential tax losses became very real in the last two weeks," Zierman said.

McCarthy could not be reached for comment Friday, and Fuller and Grove did not address their efforts to lobby the governor. Rubio, for his part, said the governor deserves the most credit for taking action that may eventually provide oil producers with better guidance on what they need to do to earn project approvals.

"As we moved forward on this, the governor became engaged," Rubio said. "So ... this is the governor's doing."

A letter-writing campaign by local service companies appears to have had an impact as well, Zierman said. So did last week's third quarter earnings conference call statements by Oxy President and CEO Steve Chazen and Berry President and CEO Robert Heinemann.

While Chazen called the state's action on injection permitting "pretty tight" without directly warning that the company may shift money elsewhere, Heinemann said Berry would, in fact, redirect its capital expenditures to "make up for" a slowdown of project approvals in California.

"All of a sudden," Zierman said, "it wasn't studies anymore. It was real investment decisions going on."

Rubio, addressing Chazen's and Heinemann's statements to analysts, said he and other lawmakers "all brought them up" with state officials.

Looking forward

Kern's delegation and industry representatives agreed that the important thing now was for the governor to see that oil producers are shown a direct path to project approval, saying that was the key ingredient missing under Miller's leadership.

DOGGR did not respond to requests for comment Friday. But Richard Stapler, spokesman for the California Natural Resources Agency, which has authority over DOGGR, said it was too early to say exactly what direction the agency would take in Miller's absence.

"I'm sure that, you know, the rank and file staff at the Division of Oil and Gas will continue to do the duties that are assigned to them," he said.

Rubio and Grove called for cooperation between industry and state officials on a long-term solution for working through the permitting backlog. Fuller said she looked forward to "working with all levels of government to wisely approach the oversight of one our region's most valuable resources."

Reheis-Boyd said clarity from Sacramento is the most important good that can come of Miller's dismissal.

"What's important is to get some leadership into both the Department of Conservation and the Division of Oil and Gas who can work with industry to (explain) clearly -- underscore clearly -- what the issues are and what the path forward to solve them is," she said.

David Hartley, an independent oil producer with operations in Kern, said Thursday's changes are definitely a step forward.

"Somebody in the upper echelons of state government has gotten the message that Elena Miller and her gang were overregulating and overreaching," he said, "and so I think that this is a good first step to reversing the damage that her and her cohorts have done."

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