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SLO County approved dozens of illegal oil wells at Arroyo Grande facility, group alleges

San Luis Obispo Tribune logo San Luis Obispo Tribune 8/24/2021 Mackenzie Shuman, The Tribune (San Luis Obispo, Calif.)

Aug. 23—For six years, San Luis Obispo County resident Natalie Risner says she trusted the government to do the right thing.

She trusted county and state officials to follow the law and stay true to their word that no new oil wells would be drilled at the Arroyo Grande oil field off Price Canyon Road until proper permits were administered and environmental review was conducted.

"I'm trusting that the state and the county are not going to allow someone to operate in a dangerous or destructive or possibly, you know, contaminating way in our county," said Risner, who lives near the oil field. "And so to find out that they're not doing their job is really hard to take."

But according to an environmental group, that's what is happening. It says illegal drilling has occurred for years under an expired permit by an oil company that took advantage of confusing language about what qualifies as "new" vs. "replacement" wells.

Since 2017, Sentinel Peak Resources, which operates the wells at the Arroyo Grande oil field, has received approval from the San Luis Obispo County Planning Commission and California Geologic Energy Management Division (CalGEM) officials to drill at least 37 new wells, 21 of which already are in operation, according to records obtained by the Center for Biological Diversity, a nonprofit watchdog environmental group.

As recently as March, the county approved 14 of those 37 new wells at the facility, according to the records.

However, the Center says those approvals were improper and illegal because the permit authorizing new oil wells on the property expired in 2015, it alleges in a letter to county officials Monday.

Steve McMasters, a supervising planner at the county who has overseen the operations at the Arroyo Grande oil field, said the county planning department has been approving the wells because they simply replace old wells that are not functioning anymore.

Additionally, McMasters said the replacement wells are within the existing footprint of the already-graded land — therefore not causing any further land disturbance.

"Certainly, the top hole location is definitely very different in some cases. But again, you're drilling a well on an existing well pad where there's other existing wellheads," he said. "For us to determine it's a replacement, really the bottom hole, where they're pulling the oil out of, is more important than where the top hole is, just because there's so many pads options available out there. You know, from a use perspective, that entire area has essentially been approved for oilfield use."

The Tribune reached out to Sentinel for comment but did not hear back before publication.

"CalGEM coordinated with the County to ensure that CalGEM's approvals were consistent with local land use approvals," wrote California Oil & Gas Supervisor Udak-Joe Ntuk, head of CalGEM, in an email to The Tribune.

The now-expired "conditional use permit, " which dates back to 2005, allowed for 130 total wells to be drilled on the property, including 95 production wells, 30 injection wells and five water disposal wells. As of 2015, when the permit's sunset clause went into effect, 63 production wells, 31 injection wells and five water disposal wells were drilled on the property, for a total of 99 wells.

Freeport McMoRan, which owned the oil-drilling operation at the time, applied for an extension to its permit to drill the remaining 31 wells by 2018. The county approved that extension request, but it was quickly appealed by the Center for Biological Diversity out of environmental concerns — therefore halting any construction of new wells until the San Luis Obispo County Board of Supervisors could hear the appeal.

Six years later, the Board of Supervisors is finally set to hear the appeal on Oct. 19.

Within that time frame, however, the oil field has been far from quiet.

New owner takes over oil field

The Arroyo Grande oil well operation changed hands in 2017 after Sentinel Peak Resources, a Denver-based energy company, bought the field in early 2017 for $592 million in cash upfront. A news release at the time said the company would pay an additional $150 million over the subsequent three years if the price of crude oil averaged $70 per barrel or higher.

Since 2017, Sentinel applied for and county and state officials approved an additional 37 wells (15 production and 22 injection) on the property, bringing the total up to 136 approved wells — exceeding the original permit's limit — according to the records obtained by the Center.

Sentinel had not applied for a new conditional use permit to build those wells, nor did it conduct an additional environmental review on the impacts the additional wells could have on the property, according to the Center's records.

"What we're seeing here is that through this replacement well process, they've really just blown through and maxed out the wells that were allowed under the 2005 permit," said Liz Jones, a staff attorney with the Center. "So at this point, legally, Sentinel can't get approval for more wells without that new permit and environmental review."

It seems what exactly the state and county were approving differed — new vs. replacement — according to the language used by Sentinel in its applications, the records show.

Since 2017, Sentinel has requested "new drill" permits from CalGEM for each new well it wished to "re-drill" on the property, according to CalGEM documents.

CalGEM then improperly approved those permits without checking to see if Sentinel was operating on a valid permit that would have allowed them to drill new wells on the property, the Center alleges.

"The County of San Luis Obispo has determined that re-drills of existing wells are covered under the most recent and current conditional use permit," according to documents obtained by the Center.

Once it received approval from the state for those "new drill" permits, Sentinel submitted permit requests to the county planning commission for "replacement wells."

"Replacement wells are necessary to maintain existing oil field operations by abandoning a failed well and drilling a new well to take its place in approximately the same location," according to Sentinel's notice-to-proceed applications submitted to the county and obtained by the Center. "Replacement wells do not result in any additional land surface disturbance; cause no appreciable increase in environmental impacts; do not increase overall well count; and do not result in any significant change to the utilization of the resource."

Under state law, an oil drilling operator must apply for "new drill" permits to drill new wells. If it wishes to re-drill a well, it must apply for a rework permit, according to state law.

There is no such thing as a "replacement well" under state or county law.

Center says Sentinel has exploited unlawful loophole to drill new oil wells

Regardless of whether the newly permitted wells are "re-drills" or "replacement wells," most have been constructed or are set to be constructed in completely different areas on the Arroyo Grande property than the wells they are purportedly replacing, according to the Center and analysis of CalGEM records by The Tribune.

Additionally, some of the old wells are still actively pumping oil, while their replacements are also pumping oil, according to CalGEM records.

For example, "9L," an oil well that initially began pumping oil in 1987 sits about 120 feet away from "9L R," a "replacement well" also currently pumping oil that was approved by the county on Sept. 16, 2019, to be built.

Another well, "17H-2," was deemed idle by CalGEM in December 2020. "17H-2 R," its "replacement well," was approved by the county on March 10 of this year — it has yet to be built but will sit about one-fifth of a mile away from "17H-2."

About 12 pairs of these wells — the old wells and their replacements — are located many feet away from each other, according to an analysis by The Tribune.

Many wells have been plugged and abandoned, a common practice at the end of an oil well's life, while their replacements have been constructed either several feet away or in the same footprint, according to the CalGEM records.

"The semantic sleight of hand employed by Sentinel and the County with regard to 're-drilling' and 'replacement wells' appears to be designed to mask a clear legal violation," the Center wrote in its letter to county officials Monday. "Nothing in Sentinel's CUP (conditional use permit), Phase IV EIR (environmental impact review for the conditional use permit), or state or county regulations allows continued expansion of an oil field without CUP authorization and environmental review under the CEQA (California Environmental Quality Act), yet this is exactly what has occurred during the pendency of this appeal."

The Center further alleges that Sentinel is exploiting "an unlawful 'replacement well' loophole to continue to drill wells in the Arroyo Grande oil field without the proper permits or environmental review."

McMasters from the county said the planning department concluded that approving the replacement wells is similar "to other authorized facilities" at the Arroyo Grande oil field.

"For instance, if there's a wellhead that is no longer functioning, let alone the downhole part of it — that's typically, those sorts of things are replaced on a regular basis, as needed," he said. "As you would expect with any industrial facility, we don't really want to destroy facilities for not replacing or upgrading facilities."

McMasters said that in order for the approved wells to be considered replacement wells, they have to be "tapping into the same area" even though the "top of the well, where it's being drilled, doesn't necessarily have to be in the same location as the old well."

There are "a lot of well pads already out there," McMasters said, so there wouldn't be additional trees being cut down or paths being cleared for new wells.

Jones, the staff attorney at the Center, said the actions by the state, county and Sentinel are "very troubling."

"This replacement law concept is completely made up," she said. "Plugging and abandoning a well is a legal requirement for every well that gets permitted. So it's really absurd to say that if an operator fulfills its legal obligation by plugging and abandoning a well, then it's somehow entitled to drill another well without further review.

"If this were the case, by this logic operators could just drill an infinite number of wells without any further review as long as they were plugging and abandoning the wells along the way."

McMasters noted that the resource Sentinel is tapping into is limited, so they cannot drill unlimited wells there. Each replacement well simply ensures it can keep tapping into the resource while the old wells are put out of service, he said.

Concerns about unknown environmental impacts associated with new oil wells

Beyond the alleged violations of state and county law carried out by Sentinel, Jones and locals say the addition of 37 new wells on the property since 2017 could be incredibly detrimental to the environment.

Most concerning is the number of injection wells approved by the state and county for the property, according to the Center.

Sentinel has received approval to drill 22 new injection wells at the site since 2017, bringing the total of that type of well up to 53, a marked difference from the 30 originally approved for construction in the conditional use permit that expired in 2015, according to the Center's records.

Injection wells shoot hot steam into an oil reservoir underground, which thins the oil and makes it easier to draw up from the ground.

According to the environmental impact review conducted for the 2005 conditional use permit, "well drilling, workover, re-drilling or steam injection activities could experience a well blow-out resulting in the uncontrolled release of fluids and possibly explosion and fire."

To prevent these oil spills or explosions from happening, Sentinel is required to use "adequate blowout prevention equipment" for each well, which it appears to have done, according to CalGEM records.

Additionally, the injection wells impact groundwater in the area.

In 2019, the U.S. Environmental Protection Agency exempted portions of the aquifer that lies beneath Sentinel's oil wells from the Safe Water Drinking Act.

This was granted largely because the portions of the aquifer where Sentinel plans to inject wastewater underground are not currently used for drinking water and will not be able to be used as such in the future because it contains "commercially producible quantities of hydrocarbons."

Recent research has found that "people living near drilling sites have a higher risk for developing cancer, increased asthma attacks, higher hospitalization rates and more upper respiratory problems and rashes," according to the Center.

Residents such as Natalie Risner, who lives close to the Arroyo Grande oil field, worry about their water and air quality deteriorating because of the expanding oil field.

"It's really sad and upsetting and it makes me worry about my well, it makes me worry about the water in our neighborhood. It makes me worry about the air quality," Risner said. "And, everything, all the environmental factors that are not being reviewed before taking action on this. It sounds like pretty neglectful action."

Risner spearheaded the creation of the local grassroots organization, Protect Price Canyon, which advocated against oil field expansion beginning back in 2015.

The advocacy action from the group largely died off after Measure G — a proposed measure that would have banned fracking and new fossil fuel extraction in parts of the county — failed in the 2018 election, and after the Center's appeal to Freeport McMoRan's extension request to drill the 31 oil wells supposedly halted any new development at the oil field.

"It's, you know, not my job to regulate the oil company," Risner said. "It's not right for constituents to have to be the ones that are being the watchdog."

The exact impacts the oil field may be having on the environment aren't completely clear, given the last environmental impact report was finalized in 2004, said Mary Ciesinski, executive director of ECOSLO, the Environmental Center of San Luis Obispo.

"Sentinel seems to be riding the coattails of that 2004 permit without taking into account more recent information that we know now," Ciesinski said. "There's new information in the past 15 years about natural resource conservation, about climate change impacts, and all of that should be taken into consideration before new oil drilling or steam injection or the other production wells, water disposal wells before all of those are being allowed."

At the Board of Supervisor's Oct. 19 meeting, the Center is asking the county to halt the illegal drilling activities and deny the extension request to build the 31 wells.

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