Key Points

  • Substantial evidence supported CalGEM's determination that San Joaquin Facilities Management's plan to drill up to 12 new water injection wells in the Fruitvale Oil Field was not exempt from CEQA review.
  • CEQA Guidelines section 15261, subdivision (b)(3), which exempts ongoing private projects approved in part before April 5, 1973, is invalid under Azusa Land Reclamation Co. v. Main San Gabriel Basin Watermaster, and Azusa's holding on that point is not dictum.
  • Even if the provision were valid, CalGEM's issuance of a Project Approval Letter involves substantially greater responsibility and control over the field's injection wells than the 1959 and 1961 approvals did.
  • The class 1 existing-facilities and class 4 minor-alterations categorical exemptions do not cover drilling new wells to an average depth of 4,500 feet, and Surfrider does not permit combining the two to reach that result.
  • The judgment was reversed with directions to deny the writ petition, and the operator's cross-appeal on attorneys' fees was dismissed as moot.

A California appeals court has ruled that state oil regulators properly refused to exempt a Kern County operator's plan for up to 12 new wastewater injection wells from environmental review. The court also held invalid a state rule the operator had invoked to claim its project was grandfathered because the oil field predates the law.

The Fifth Appellate District reversed a Kern County Superior Court judgment that had ordered CalGEM, the Department of Conservation's Geologic Energy Management Division, to treat San Joaquin Facilities Management Inc.'s project as exempt from the California Environmental Quality Act and to issue the approval it sought. Acting Presiding Justice Detjen wrote the opinion, and Justices Meehan and Snauffer joined it. The panel filed the opinion unpublished on Sept. 17 and certified it for publication on Oct. 15.

The California Environmental Quality Act, or CEQA, bars public agencies from approving projects with significant environmental effects when feasible alternatives or mitigation measures could substantially lessen or avoid those effects. When a project falls outside every exemption, the agency must "conduct an initial study to determine if the project may have a significant effect on the environment," the opinion explains, quoting the California Supreme Court. The ruling leaves in place CalGEM's 2020 determination that the company's project does not qualify for an exemption.

The company operates oil and water injection wells in the Fruitvale Oil Field, which straddles unincorporated Kern County and Bakersfield. It proposed up to six injection wells on its KCL-B lease and up to six on its Red Ribbon Ranch lease. The wells would pump "produced water," the groundwater that comes to the surface with extracted oil and gas, into the Santa Margarita Formation at an average measured depth of 4,500 feet. Before injection begins, CalGEM must issue a "Project Approval Letter," a written approval of an underground injection project.

Water injection in the field began in 1959, and three of its 32 injection wells were drilled before April 5, 1973, the grandfathering provision's cutoff date.

In a Feb. 25, 2020, email, CalGEM's CEQA Unit told the company that "the proposed project does not qualify for an exemption" and that an initial study was required. The unit's supervisor, Cathi Slaminski, had wrongly assumed the project involved cyclic steaming, an injection method linked to problems at another oil field. She later wrote to a colleague, "It's a new well & it's controversial, so I don't think an exemption would be appropriate."

"We find this reasoning largely deficient," Justice Detjen wrote. But the panel applied the rule that a correct decision stands even when the decisionmaker gave a wrong reason. "Despite these errors, we do not terminate our inquiry into the correctness of CalGEM's determination," the court wrote.

The company invoked a provision of the CEQA Guidelines, the act's implementing regulations. The provision implements a grandfathering exemption the Legislature enacted after the California Supreme Court held in 1972 that CEQA covers private projects that need permits. Under the provision, a private project that received a discretionary approval before April 5, 1973, becomes subject to CEQA only if later approvals "involve a greater degree of responsibility or control over the project as a whole" than the earlier ones. Kern County Superior Court Judge Gregory A. Pulskamp found that "[t]he replacement of injection wells is a normal part of the ongoing operation of the oil field" and granted the company's petition in November 2024.

The appeals court held the provision invalid, following Azusa Land Reclamation Co. v. Main San Gabriel Basin Watermaster, a 1997 decision of the Second Appellate District. The Azusa court reasoned that the state Office of Planning and Research, which drafted the provision, had no authority to create CEQA exemptions. The company argued that Azusa's ruling on validity was dictum. The Fifth District disagreed, explaining that Azusa gave two independent reasons for its decision and that each counts as a holding.

The panel added that the provision would not help the company even if it were valid. After tracing the oil and gas laws from their 1939 enactment through the 2019 rule creating the Project Approval Letter, the court concluded that "CalGEM's responsibility and/or control over water injection wells intensified over time."

The court also faulted the trial court's reliance on two decisions applying a separate exemption for public projects approved before CEQA took effect in 1970. The panel left unresolved "the novel issue of whether an entire oil field" worked by many operators may be treated as a single pre-CEQA project.

The company also invoked two categorical exemptions, which cover classes of projects that state officials have determined do not have a significant effect on the environment. The class 1 exemption covers existing facilities. The court held that the record "shows SJFM proposed to drill up to 12 new water injection wells, not merely remedy, maintain, convert, or abandon existing ones."

The class 4 exemption covers minor alterations to land. "[W]e refuse to adopt an expansive meaning of 'minor alterations to land' that encompasses multiple drillings to an average depth of 4,500 feet," the court wrote. The company argued that a 1994 appellate decision, Surfrider Foundation v. California Coastal Commission, allowed the two exemptions to be combined. The court responded, "Surfrider does not stand for such an approach nor will we endorse it."

The court dismissed as moot the company's cross-appeal from an order striking its request for attorneys' fees under California's private attorney general statute, which allows fees only to a "successful" party.

Matthew C. Wickersham of Alston & Bird represented San Joaquin Facilities Management. CalGEM and the State Oil and Gas Supervisor were represented by the office of Attorney General Rob Bonta.

The appeals court directed the superior court to vacate its order granting the writ of mandate and to enter an order denying the company's petition. It awarded costs on appeal to CalGEM and the State Oil and Gas Supervisor.