California, the seventh-largest U.S. oil producer, has put a near halt on issuing permits for new oil and gas drilling this year. The state’s Geologic Energy Management Division has approved seven new active drilling well permits in the first half of 2023, which compares with over 200 it had issued by this time last year. The delay in approvals is due to California’s progressive environmental laws and standards against fossil fuels despite its role as a major oil producer and a major oil-consuming state. While new drilling permits have steadily declined since Gavin Newsom became governor in 2019, the current rate of approval represents a sudden and dramatic drop. The oil industry has more than 1,400 permit applications for new wells awaiting state approval, half of which are over a year old. Newsom wants to phase out oil drilling in the state by 2045.
The state’s agency indicated that the smaller number of approvals were due to the decline in California oil production and litigation that has paused permitting by Kern County, the center of the state’s oil industry. However, according to the state’s agency, it is processing far more approvals to permanently close wells than for any other activity and it expects the trend to continue as California transitions away from fossil fuels. Nearly one in five Californians now live within a mile of an active oil well as homes have been built near wells that have been in place for many decades, as the first producing well in California was in 1876.
In a concession to the oil and gas industry, approvals to improve or repair established wells are up nearly 50 percent to 1,650 in the first half of this year. Reworking existing wells to boost their production, however, cannot replace oil from new wells that are needed to meet California’s energy needs.
Last year, California passed a law banning oil and gas drilling within 3,200 feet of structures including homes, schools and hospitals. The California Independent Petroleum Association blocked implementation of that law by qualifying a referendum to overturn it for the November 2024 ballot. Nearly half of the wells with rework permits approved this year are within the contested buffer zone. Opponents criticized those approvals as a threat to public health because they extend the lives of low- and non-producing wells, which the group argues would likely have been plugged had the setback law not been paused.
California currently has about 102,000 unplugged oil and gas wells. Out of those, about 40 percent are idle and not producing oil or gas at this time. Nearly half of the state’s idle wells have been idle for more than 15 years. Oil producers are allowed to idle wells, but must pay a fee to the state. As new technology is developed to get at difficult oil resources, wells may become productive again. For example, much of the revolution in horizontal drilling and hydraulic fracturing of shale basins in the United States happened in areas long considered “played out.” The oil and gas industry must comply with state and federal regulations as it is one of the most regulated industries in in the world.
Federal Approvals in California
Permit approvals on federal lands in California so far this fiscal year, from October 1, 2022 through April 30, 2023, amount to just 3 despite having 106 applications pending. That compares to 166 approved for the same period of time the previous fiscal year, a huge drop. In fiscal year 2022, the Biden Administration approved 201 drilling permits in California and had only 50 pending.
Receiving a permit to drill is a necessary step for oil and gas companies to undertake once they have purchased a lease. However, the determination to drill depends on many factors including finances, local regulations, the availability of materials such as steel, and worker availability. Workforce availability and supply chain issues can be obstacles to oil field development, as they are in many other industries. Also, given that the Biden administration has said repeatedly that its policy is to end drilling on federal lands, the oil and gas industry is “skeptical” regarding the true nature of the approvals and whether further investment is in their economic interest. This is particularly true since the Biden administration has increased royalty rates from 12.5 percent to 18.75 percent and cut about 80 percent of the acreage proposed by industry during environmental reviews.
Conclusion
It appears that drilling permit approvals for oil and gas in Newsom’s California and on California public lands are being delayed as both Governor Newsom and President Biden want to end the use of fossil fuels even though they represent almost 80 percent of the energy supply in this country. Between the Biden administration and the Newsom government, California has received 10 drilling permits this year—a small fraction of what the industry has received in the past in that state—which will hinder the state getting the oil and gas its residents need. It seems that in the race between two potentially vying presidential candidates, the real losers are the American people and the economy.
*This article was adapted from content originally published by the Institute for Energy Research.