Posted on August 20, 2015 by Patrick Dennis
For those of you who, like me, are becoming more confident as the years go by that you have “seen it all” in the field of environmental law, this strange current event will change your mind.
California’s oil and gas production industry has been on a roll for the past decade. Aided by the price of crude oil in the $100 per barrel range and new technologies, including hydraulic fracturing among others, industry has increased production from previously written-off reservoirs. During this time, the California Division of Oil, Gas and Geothermal Resources (“DOGGR”) has been the lead agency for that industry, issuing the key environmental permits for its regular operations. Those include the underground injection permits that allow the industry to take the wastewater typically produced along with crude oil from subsurface production zones and reinject it underground into other water bearing zones. For nearly thirty years, the issuance of such permits proceeded without major interruption or controversy, but as of the start of this year all that changed.
The story begins in 1982 with California’s application for primacy to implement the Underground Injection Control (“UIC”) program of the federal Safe Drinking Water Act. Historically, in California most crude oil producing formations are comprised of over 90% water. Produced water, generally of poor quality, has been disposed as Class II wastes through underground injection wells often located near the production wells. California’s application for UIC primacy identified those underground aquifers where injection of produced water from oil and gas production was already taking place. These aquifers were exempt from the prohibition on underground injection of Class II wastes either because they contained greater than 3,000 mg/l of total dissolved solids (“TDS”) and as a result were considered to be unfit as drinking water, or they contained less than 3,000 TDS but met stringent standards of the UIC program.
In a memorandum of agreement (“MOA”) between US EPA and DOGGR executed in September 1982, the two agencies memorialized their agreement to allow DOGGR to implement the federal UIC program in California. A list of both exempt and non-exempt aquifers is attached to the MOA. Just a few months later, in December 1982 a second version of the MOA was circulated that transferred 11 of the aquifers from the non-exempt list to the exempt list. Then, in one of the stranger administrative developments I’ve seen, the September 1982 signature page was affixed to the end of the changed MOA and attachment. Thus, there were two MOAs – MOA1 drafted and executed in September 1982 and MOA2 apparently drafted and agreed upon in December 1982, both using the same signature page from September. The 11 aquifers that went from non-exempt aquifers into which there could be no Class II discharge to exempt aquifers allowed to receive Class II discharges included some of the more critical subsurface aquifers used by the oil and gas industry.
As a result of the 1982 MOAs and the transfer of the administration of the UIC program to DOGGR, California’s oil and gas industry was able to secure a much closer (geographically and philosophically) regulatory agency. UIC permits have been routinely issued to oil and gas producers for injection into exempt aquifers – as recognized in MOA2. Today there are approximately 50,000 produced water and enhanced recovery oil and gas injection wells in California. The oil and gas industry has invested hundreds of millions, more likely billions, of dollars in infrastructure and hardware for these wells based in substantial part on the authorizations in their DOGGR permits.
Now we come to the punchline and the strange situation we find ourselves in today.
Beginning in about 2012, US EPA took a hard look at DOGGR’s implementation of the UIC program and concluded that DOGGR may have issued UIC permits for injection into underground formations that either were not, or should not have been, exempt under the standards set forth in the UIC program. That audit culminated this year in a series of letters issued by both EPA and DOGGR setting forth an ad hoc program to re-evaluate many of the underground formations that had been treated as exempt by DOGGR for decades, including the 11 aquifers that had been “switched” from non-exempt to exempt status by MOA2. EPA and DOGGR contend that industry must prove that some of these long-held exempt aquifers really qualify for their exemptions, even though industry received permits from DOGGR based upon the 1982 MOA. This complete reversal of long-held assumptions has caused a substantial amount of angst and uncertainty in the industry.
But perhaps the most astonishing development is the publication of analyses of the validity of the two competing MOAs for the 11 aquifers that appeared on the California EPA website and the dissemination of the competing MOAs on the DOGGR website. In a March 2, 2015 memorandum authored by Matthew Rodriguez, the Secretary of Cal EPA, the strange procedural history of the competing MOAs, with identical signature pages, is detailed and includes a relatively candid admission that “DOGGR and U.S. EPA agreed to exempt the 11 aquifers, but may not have followed regulatory procedures.”
Cal EPA and DOGGR seem to agree that they assumed and treated the 11 aquifers as exempt for 30 years and that MOA2 appears to be the real, and final, MOA. However, US EPA has not issued a final opinion on that issue and continues to leave open the prospect that the 11 aquifers, among others, were never somehow officially exempt under the UIC. They have even adopted a moniker for the 11 and calling them the “11 historically-exempt aquifers.”
The final conclusion to this story is yet to be written. Assuming that re-consideration of the status of the exempt aquifers does not result in the removal of their exemption, then it may not be necessary to determine what legal significance the competing MOAs enjoy, or which one is “right.” But if EPA or DOGGR change the status of aquifers from exempt to non-exempt, their actions may shut down injection operations, thereby imperiling ongoing oil and gas operations. In that event, one or more of the affected industry companies may challenge the validity of MOA1 and seek to compel validation of MOA2.
If that happens, then as an oil and gas industry lawyer, I’m hoping that as between the twin MOAs, MOA2 is Pollux and MOA1 is Castor.
 For those unfamiliar with Greek mythology, Pollux and Castor were twins with ambiguous parentage, but only Pollux was immortal and Castor was not.