California’s Oil and Gas Industry

fracking

Lately I’ve been seeing more signboards in people’s yards expressing opposition to the idea of fracking in California.  Since I often review oil field companies for investors, I thought it might be interesting to look at the regulatory climate in California for oil and gas exploration and production.

Warning - heavy regulatory language ahead!

This post presents a brief regulatory review to identify the key regulatory requirements that apply to the oil and gas industry in California, which is significantly more stringent than programs in other states.  Regulatory programs reviewed include hazardous waste, underground injection control, and above ground storage tank regulations.

Hazardous Waste Regulations

The U.S. Environmental Protection Agency has fully delegated the implementation of the federal Resource Conservation and Recovery Act hazardous waste provisions to the State of California.  The California hazardous waste regulations are found in Title 22 of the California Code of Regulations, Division 4.5.  Statutory requirements are found in the Health and Safety Code, Division 20, Chapter 6.5, some of which have not been codified in the regulations.  California’s program pre-dates and is more stringent than the federal hazardous waste program.  Oil and gas activities in California are regulated under this program.

Definition of solid waste

The federal regulations found in 40 CFR 261.4(a)(12)(ii) contain an important exclusion from the definition of solid waste for recovered petroleum products:

Recovered oil that is recycled in the same manner and with the same conditions as described in paragraph (a)(12)(i) of this section. Recovered oil is oil that has been reclaimed from secondary materials (including wastewater) generated from normal petroleum industry practices, including refining, exploration and production, bulk storage, and transportation incident thereto (SIC codes 1311, 1321, 1381, 1382, 1389, 2911, 4612, 4613, 4922, 4923, 4789, 5171, and 5172.) Recovered oil does not include oil-bearing hazardous wastes listed in subpart D of this part; however, oil recovered from such wastes may be considered recovered oil. Recovered oil does not include used oil as defined in 40 CFR 279.1.

This exclusion is not recognized in California, so recovered oil generated from oil and gas production must be managed as a solid waste.

Definition of hazardous waste

40 CFR 261.4(b)(5) contains a second exclusion from the definition of hazardous waste, commonly referred to as a Bentsen waste:

Drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas or geothermal energy.

This exclusion applies not only to waste fluids brought to the surface during the drilling and production processes, but also wastes that come into contact with the gas production stream, for example water used to cool drill bits.  The exclusion was included in the 1980 RCRA law as part of a group of “special wastes” that required further evaluation by EPA.  These wastes were temporarily exempted from the law under the Bentsen and Bevill Amendment because they were produced in very large volumes, thought to pose less of a hazard than other wastes, and were generally not amenable to the management practices required under RCRA.

This exclusion is not recognized in California, so drilling fluids, water, and wastes from oil exploration, development, and production must be evaluated to determine if they exhibit any characteristics of hazardous waste.  These wastes are managed as “non-RCRA” hazardous wastes under California law (22 CCR 66261.101(b)(2)) and must be treated and disposed in permitted treatment, storage, and disposal units.

Regulation of Underground Injection of Liquid Wastes

Under the federal Safe Drinking Water Act, underground injection of liquid wastes is regulated under 40 CFR Parts 144-148.  Class II wells under this program are those used for oil and gas-related fluids and are referred to as underground injection control (UIC) wells.  Currently, close to 42,000 oilfield injection wells are operating in the state. Injection wells are used to increase oil recovery and to safely dispose of the salt and fresh water produced with oil and natural gas.

UIC wells fit into one of three categories:

  1. Enhanced recovery wells are used in hydraulic fracking to inject fluids into oil-bearing formations to recover residual oil and natural gas, and these wells are an integral part of the production system.  The UIC program does not regulate these wells, although USEPA has asserted that it has the authority to regulate these wells if diesel fuel is used as an additive to the fluids.
  2. Disposal wells inject brines and other fluids associated with the production of oil and natural gas and also for natural gas storage operations.
  3. Hydrocarbon storage wells are generally part of the U.S. strategic reserve program

In California, all Class II injection wells are regulated by the Department of Conservation, Division of Oil, Gas, and Geothermal Resources, under provisions of the state Public Resources Code and the federal Safe Drinking Water Act. Class II injection wells fall under the Division's UIC program, which is monitored and audited by the U.S. Environmental Protection Agency. In 1983, the Division received EPA primary authority, primacy, to regulate Class II wells. The main features of the UIC program include permitting, inspection, enforcement, mechanical integrity testing, plugging and abandonment oversight, data management, and public outreach.  Extensive guidance and permit requirements available here.

EPCRA and Tier II reporting

Under the federal Emergency Planning and Community Right to Know Act (EPCRA), oil and gas production facilities that store more than 10,000 pounds of petroleum or hazardous materials must file a Tier II report and provide information to their local and state emergency planning committees about the nature and quantity of materials stored at their facilities.  In California, reporting under this program has been expanded to cover nearly all businesses that handle hazardous materials.  These businesses are required to develop Hazardous Materials Business Plans that include an inventory of materials handled, storage locations and requirements, and emergency response plans.  The regulatory oversight for these programs have been delegated to county and city agencies, referred to as Certified Unified Permitting Agencies (CUPAs).  All reporting is done electronically, using resources found here.

California Aboveground Petroleum Storage Tank Act

The Aboveground Petroleum Storage Act (APSA) can be found in the Health and Safety Code, Chapter 6.67.  Regulations have not yet been developed under this statute.  APSA regulates facilities with aggregate aboveground petroleum storage capacities of 1,320 gallons or more, which include aboveground storage containers or tanks with petroleum storage capacities of 55 gallons or greater. These facilities typically include large petroleum tank facilities, aboveground fuel tank stations and vehicle repair shops with aboveground petroleum storage tanks. The Act does not regulate non-petroleum products. Facilities with total petroleum storage quantities at or above 10,000 gallons are inspected at least once every three years by a CUPA and have reporting and fee requirements, while facilities with petroleum storage quantities equal to or greater than 1,320 gallons but less than 10,000 gallons have reporting and fee requirements only. All regulated facilities must meet the federal SPCC rule requirements.