Federal Review Calls for Changes in State Oil Regulations

- Federal Review Calls for Changes in State Oil Regulations

Wednesday, August 31, 2011
The Bakersfield Californian
by John Cox

A recent federal review calls for tightening California's oversight of certain underground injection activities common in Kern County oil fields.

Saying more should be done to protect underground sources of drinking water, the U.S. Environmental Protection Agency-commissioned review recommends several measures that could make it harder for oil companies to get permission to inject steam, wastewater and other materials underground.

The review comes at a sensitive time for California local oil producers. For months the industry has howled about the more cautious, time-consuming approach that Sacramento has taken to regulating underground injection projects over about the last year and a half. Trade associations say delays cost jobs and worsen California's dependence on foreign oil.

Industry representatives said Tuesday it is unclear what exactly will be the impact of the review, a summary of which was posted online Friday by the state Division of Oil, Gas and Geothermal Resources. Oil industry spokespeople noted that DOGGR officials have not officially responded to the review.

Rock Zierman, CEO of the California Independent Petroleum Association, said he saw no "red flags" raised in the report. The most important question, he said, is how the recommendations are implemented by the state, if it comes to that.

"Keep in mind that much of what they're raising is a paperwork problem," Zierman said.

A DOGGR spokesman wrote in an email Tuesday that some of the review's findings are reflected in regulatory changes already instituted at DOGGR over the last three years. Spokesman Don Drysdale indicated that this point will be discussed in meetings tentatively set to begin next month between State Oil and Gas Supervisor Elena Miller and David Albright, the San Francisco-based manager of the EPA's Pacific Southwest Ground Water Office.

Drysdale added that any new rules would have to be drafted by DOGGR and then go through a public review process before being reviewed by the state Office of Administrative Law.

Since 1983, DOGGR has regulated underground injection projects under a "primacy" agreement with the EPA. The agreement requires periodic reviews such as the one posted in summary form Friday.

Three specific issues

In a letter to Miller dated July 18, Albright made specific mention of three issues discussed in the review, which was conducted by Horsley Witten Group, an East Coast environmental science and engineering firm:

• Unlike federal rules, DOGGR regulations do not clearly require the agency to protect water containing up to 10,000 milligrams per liter of dissolved solids. State rules define "fresh water" as containing no more than 3,500 milligrams per liter of dissolved solids;
• State regulators are approving underground injection projects based on reviews that extend a quarter mile around the proposed injection well. "Whereas the fixed radius approach may be appropriate for some injection wells," Albright wrote, other wells may require a wider area of study;
• Federal and state laws say that the maximum surface injection pressure must not exceed a level capable of fracturing the area's underground geology. DOGGR regulators, however, often use only estimates of the fracturing pressure, and that when they perform a more detailed pressure study, then fail to gather "the more accurate combination of surface and bottom-hole measurement."

Albright's letter to DOGGR made brief reference to several other matters raised in the Horsley group's review. These range from the professional qualifications of DOGGR's underground injection control staff and the frequency of project reviews to well plugging and abandonment requirements.

A theme raised repeatedly in the review is that DOGGR has lacked adequate staffing to address various regulatory challenges. It also notes that DOGGR has recently received approval to hire more staff.

DOGGR wrote Tuesday that in fiscal year 2010-11 it received approval to fill 17 underground injection control positions statewide. That brought DOGGR's total payroll to 157, not all of these related to underground injection.

The DOGGR district that includes Kern County performs more underground injections than any other district, comprising 86 percent of the state's active underground injection wells.

The specific uses of Kern injection wells range from cyclic steam (58 percent of all California's active underground injection wells) and steam flooding (14 percent) to water disposal (3 percent).

Cathy Reheis-Boyd, president of the Western States Petroleum Association, said she and her staff were anxious Tuesday to get a copy of the full EPA-ordered review, which was not available on DOGGR's website. She said the goal of WSPA, which represents the state's largest oil producers, was to begin work with DOGGR to address the federal government's concerns as quickly as possible and then return to the business of producing oil.

"From a bigger policy perspective," she said, "we really need to come to agreement on how we're going to proceed with all parties."

Copyright (c) 2011 The Bakersfield Californian (Bakersfield, Calif.)

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Govt Says Open to Review of Profit-Sharing Formula

- Govt Says Open to Review of Profit-Sharing Formula

Tuesday, June 21, 2011
Knight Ridder/Tribune Business News
by Utpal Bhaskar, Mint, New Delhi

In an attempt to deflect criticism by the country's apex auditor, petroleum minister S. Jaipal Reddy said the government was open to revisiting its profit-sharing formula for awarding hydrocarbon blocks and will strengthen the office of the oil regulator.

The Comptroller and Auditor General of India (CAG) had criticized Reddy's ministry and regulator Directorate General of Hydrocarbons (DGH) for allegedly allowing Reliance Industries Ltd (RIL) to inflate development costs on the D6 block in the Krishna-Godavari (KG) basin.

RIL has denied the charge.

Under India's new exploration licensing policy (Nelp), companies win exploration blocks in a competitive bidding process that involves revenue-sharing (or production-sharing) agreements with the government. According to this contract, the government's share from hydrocarbon blocks, known as profit petroleum, comes only after the companies recover all their costs.

"Today's formula of investment multiple was evolved in 1995. If (a) more foolproof formula is possible, why not look at that," said Reddy. "If there is an alternative formula which is less controversial and is fail-safe, then why not?"

Reliance Natural Resources Ltd (RNRL) had earlier alleged that RIL had "gold-plated" exploration costs in KG D6 by almost four times--from $2.47 billion in 2003 to $8.83 billion--to undermine its demand for cheaper gas.

RIL, an oil-to-yarn conglomerate, is controlled by Mukesh Ambani. RNRL is controlled by his brother Anil.

The accusations were made at a time when the brothers were at loggerheads, before patching up in May 2010.

The Communist Party of India (Marxist), or CPM, and the main opposition Bharatiya Janata Party have criticized the Congress-led United Progressive Alliance (UPA) government over the findings in the CAG's draft report. The CPM has demanded "immediate amendment of the present pricing formula in the production-sharing contract in consultation with CAG" and "immediate action" against the officials involved, including former director general of hydrocarbons V.K. Sibal.

It has also demanded that the price of gas be "delinked from international dollar price of crude" and the price of KG basin gas "be revised on the basis of actual cost of production and a cost-plus formula."

CAG's draft report also states that the British Gas Exploration and Production India Ltd-operated Panna/Mukta and Tapti fields, which have other partners such as RIL and state-owned Oil and Natural Gas Corp. Ltd (ONGC), too, increased development costs, and that Cairn India Ltd was allowed to carry out exploration in areas not covered under its RJ-ON-90/1 block in Rajasthan. "The institution of DGH is not capable of handling the technical and financial issues of this size," Reddy said.

The ministry of petroleum and natural gas has sought eight weeks to submit its response to CAG's draft report. "Our ministry will approach the subject with an open mind... we will not hesitate to correct ourselves," Reddy said.

Reddy declined to comment on whether CAG's draft report will affect approval for RIL's proposed move to offload a 30% stake in its hydrocarbon blocks to London-based BP Plc., only saying the deal "was under consideration."

In a separate development, Reddy said the cabinet committee on economic affairs (CCEA) may take up this week Vedanta Resources Plc.'s proposed acquisition of a majority stake in Cairn India Ltd.

A group of ministers (GoM) set up to vet the deal has recommended that CCEA approve the transaction but with riders to protect the interests of Cairn's partner, ONGC.

The state-owned company had made the resolution of a royalty payment dispute with its partner a precondition for approving the deal. The ministry had placed the issue before CCEA, which, in turn, recommended it to a GoM. An external spokesperson for RIL and a Cairn spokesperson declined comment.

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BOEMRE Improves Efficiency of Permit Review Process

- BOEMRE Improves Efficiency of Permit Review Process

Friday, June 03, 2011
BOEMRE

Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) Director Michael R. Bromwich announced that the bureau is putting in place significant improvements in the oil and gas permit application process. These improvements include the publication of a permit application checklist to assist offshore oil and gas operators in submitting complete applications to drill; the implementation of completeness checks by BOEMRE personnel before significant staff time is spent reviewing the application; and the development of clear permit review priorities that will expedite agency reviews.

"We are constantly looking for ways to create a smarter, more efficient, and more transparent permit review process," said Director Bromwich. "Our goal is to make the process of submitting permit applications easier, reduce the time it takes to review permits and improve BOEMRE's communication with operators during the permit review process. We will continue to search for additional ways to improve our processes without in any way modifying or relaxing the more stringent safety and environmental rules we have implemented over the past year."

Key improvements that are being implemented include:

• The publication of a "completeness" checklist for offshore oil and gas operators. This high-level checklist, which aligns with BOEMRE's review process, includes the main components that need to be submitted by operators to make a permit application complete. This checklist does not ensure approval of an application, but will clarify for operators what is needed in their submission. The development of the checklist comes after multiple meetings with operators who have requested such additional guidance.
• To improve the efficiency of the review process and reduce the number of permits returned to operators because of incomplete information, BOEMRE personnel will conduct completeness checks before beginning an in-depth, substantive review of the application. Bureau personnel will focus on identifying significant omissions during the initial review so as to quickly identify applications that are not ready for full review. Deficiencies and omissions will be communicated to the operator for correction at the same time. This does not guarantee that incomplete information will not be found later in the review, but the completeness check is designed to capture the major gaps in submission criteria early in the review process.
• In an effort to ensure efficiency, permits found to be complete will have a higher priority in the review process. The bureau has established priorities for reviewing permit applications as follows: 

o Permits for ongoing operations, such as sidetracks or deeper exploration of an existing well;

o Applications deemed complete; and

o If staff time allows, applications that are not deemed complete, such as those missing a required containment plan or the necessary professional engineer certifications, may begin to be processed. This category also includes permit applications without an approved exploration or development plan.

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Politicians Push to Revise Oil Project Review Process

Politicians Push to Revise Oil Project Review Process

Monday, April 11, 2011
The Bakersfield Californian
by John Cox

Kern County politicians are urging Gov. Jerry Brown to ease what the local oil industry sees as a clampdown on certain drilling-related activities that state regulators view as environmentally risky.

Members of the local delegation say inexperienced bureaucrats in Sacramento have held up job creation by withholding approval of numerous oil field projects rather than keeping to longstanding if informal collaboration with industry.

State oil regulators acknowledge a slowdown in project approvals, but they blame a combination of staffing limitations, complex engineering issues and the need to follow state and federal laws protecting California drinking water.

While friction between local oil producers and regulators has remained almost constant in recent years, this latest escalation stands out both for its timing and political reach. With oil prices approaching all-time highs and employment low, newly seated local politicians are pressing Brown to prod a department that many contend has taken a more cautious direction since a leadership change in 2009.

The specific activities at issue, underground injection projects, involve pumping nonlethal fluids into new or existing oil fields. Sometimes these projects reinject substances that already exist underground, such as water or hydrogen sulfide that come up during the oil production process. Other underground injection projects introduce steam and other materials that make oil easier to draw up from below.
Slow approvals

The state Division of Oil, Gas and Geothermal Resources says it received 55 underground injection project applications in 2008, and that 93 percent of them have since been approved. In 2009, 52 applications came in, 71 percent of which have won DOGGR's approval. Fully 100 projects were formally proposed last year; 27 percent of them have been approved. (One proposed project may serve 10 or more producing oil wells.)

Most of California's proposed injection wells are in Southern California. Only 30 percent of 158 pending projects are proposed in Kern County, according to DOGGR.

DOGGR says state worker furloughs account for much of the backlog. And while a division spokesman stated that staff are mindful of industry's impatience amid strong oil prices, such projects are discretionary and require engineering analysis to make sure what is injected does not spread to unintended surrounding areas.

Spokesman Don Drysdale also noted that the division must ensure that oil fields are not damaged to the point that future generations cannot continue to recover oil.

"The division is doing its best to balance the needs of this important industry with the needs of Californians for effective environmental oversight for public health and safety," Drysdale wrote in an email.

A spokesman for the state Natural Resources Agency, which has oversight authority over the division, emphasized that DOGGR is only following the legal process, which he said is not supposed to be informal.

Special care must be taken to ensure that injected fluids do not spill out from abandoned wells nearby, spokesman Richard Stapler said.

Oil industry representatives say the state is being overcautious. Before the September 2009 arrival of Elena Miller, a lawyer who leads DOGGR as California's oil and gas supervisor, oil producers would appeal project rejections to a working group composed of various state regulators and industry representatives. They say compromises were usually worked out at such meetings.

But now, industry representatives say, not only has a wide degree of local discretion been replaced with micromanaging in Sacramento, but the division refuses to issue rejections, thereby removing the opportunity for appeal.

Les Clark, executive vice president of Bakersfield's Independent Oil Producers Agency, said a new state law governing oil spills, known as AB 1960, has complicated the review process. Still, he blames Miller for "overkill" with regard to safety, saying she insists on measures that make projects far too expensive.

Clark also said Miller and her staff have been inconsistent in what they ask of producers.

"Every time you talk with her it's a different story," he said.

Miller could not be reached for comment.

Several oil producers operating in Kern County declined to comment on the record. One that did, Chevron, cited progress in working with DOGGR.

"While we have experienced delays, we have provided extensive technical information that DOGGR requested and have began receiving permits and are getting people back to work," Chevron spokeswoman Carla Musser wrote in an email. "We are continuing to work with DOGGR on obtaining permits."
Politicians get involved

Local politicians have met with Gov. Brown's staff in an attempt to come to a resolution. They do not necessarily agree about what should be done, however.

Assemblywoman Shannon Grove, R-Bakersfield, suggested firing Miller outright.

"The governor needs to replace her with somebody who understands the oil industry," Grove said.

Two other local representatives -- State Sen. Jean Fuller, R-Bakersfield, and Sen. Michael Rubio, D-Bakersfield -- said they favor creating a clear path of approval for the industry.

Fuller said that if DOGGR's policy has changed, then the industry needs to know how.

"If it's not that, if it's a manpower issue, then we need to look at the manpower issue," she said.

Rubio said producers need to know how long the review process will take, and that more control should be given to DOGGR's local staff.

"I'm confident that very soon there will be a solution," he said, referring to comments made by the governor's staff. Fuller, Grove and the office of Assemblyman David Valadao, R-Hanford, also expressed expectations for a prompt resolution.

Efforts to reach the governor's office were unsuccessful.