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California

Tom Gray
The Green and the Black
California’s oil industry speaks loud enough for Jerry Brown to listen.
18 November 2011

It took some doing, but business just won a round in its seemingly endless battle with the balky regulators who give California such a bad reputation. And it wasn’t just any business: it was the unfashionable, unloved oil and gas industry. Earlier this month, Governor Jerry Brown announced that he would replace two top state regulators responsible for reviewing new oil-drilling permits. Placed on paid administrative leave was Elena Miller, who had direct authority over the permitting process as head of the state’s Division of Oil, Gas and Geothermal Resources (DOGGR). Brown also dismissed Miller’s boss, Derek Chernow, the acting director of the state’s Department of Conservation. Brown had sense enough to see that California was becoming known as a bad place to invest. Now, of course, he will need to follow through by appointing a DOGGR chief similar to those who ran the agency before Miller: not a shill for Big Oil, but someone who would enforce environmental rules without treating oil and gas production as something akin to a criminal enterprise.

Miller was an Arnold Schwarzenegger appointee and had been on the job since September 2009. On her watch, the pace of permitting at DOGGR slowed in proportion to the number of drilling applications that the agency received. In 2009, according to Bloomberg News, the agency approved 37 of 52 applications for new drilling. This year, DOGGR has approved just 14 of 199 applications. Miller insisted that the slowdown couldn’t be helped; regulators have a responsibility to ensure that extraction techniques, such as steam injection, don’t pollute groundwater or have other dire environmental consequences. (Incidentally, steam injection shouldn’t be confused with the more controversial hydraulic fracturing, or “fracking.”) While it may be true that Miller was exercising due diligence zealously, it’s also true that she earned a reputation as a talk-to-the-hand bureaucrat. As Catherine Reheis-Boyd, president of the Western States Petroleum Association, told the Los Angeles Times, Miller had “no interest in talking, no interest in solving [problems] and no interest in granting permits. . . . It’s hard to solve a problem when someone won’t tell you what the problem is.”

Miller and Chernow finally received their walking papers when the industry’s frustrations could no longer be ignored without doing further damage to the battered California business climate. A study earlier this year by the Los Angeles County Economic Development Corporation found that drilling delays were costing the state about $1 billion per year in new capital investment. By September, industry leaders were talking openly of suing the state. Brown heard from a bipartisan band of lawmakers, including Democratic state senator Michael Rubio and Republican congressman Kevin McCarthy, the majority whip in the U.S. House of Representatives.

The last straw might have come in October, when Occidental Petroleum Corporation declared that California permit delays could cause the company’s 2011 oil and gas production to fall for the first time since 2005. Even Wall Street was taking notice now: in the middle of a domestic oil and gas boom pushing America toward its long-sought goal of energy independence, California—wouldn’t you know it?—was bucking the trend.

Petroleum may look like a small player compared with California’s agriculture sector or marquee industries such as entertainment, technology, and tourism, and the oil business gets nothing close to the promotion that the state lavishes on solar and other “green” power. But California is the fourth-largest producer of crude oil in the country—behind Texas, Alaska, and federal leases in the Gulf of Mexico. California also has huge reserves of shale oil. A federal report published in July estimated that some 15 billion barrels of crude are technically recoverable from the Monterey shale formation in and around Kern County. How much of that oil actually gets pulled from the ground depends on the price, but it accounts for nearly two-thirds of America’s entire shale oil reserves and would cover about two years of total U.S. crude-oil consumption.

Such treasure compels Occidental and other drilling companies to stay in California despite the regulatory hurdles. For bureaucrats to block their efforts without good reason is not only bad for the state but also damaging to America’s economy and long-term security. Most of what California does to itself may not be of great consequence to the rest of the country; after all, jobs that leave California will probably go to some other state. But locking up a strategic national resource is a more serious business, as even an environmentalist like Jerry Brown could figure out.

Tom Gray, formerly the editorial page editor at the Los Angeles Daily News, writes on California’s economy and politics.

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