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2011 Legislative Talking Points
The California Independent Petroleum Association (CIPA) is a non-profit trade association representing independent oil and natural gas producers, royalty owners, and industry-related service and supply companies. “Independents” are non-integrated companies which work strictly in the exploration and production of crude oil and natural gas, with no refining or retailing interests. CIPA represents over 470 different companies.
California’s Oil Supply Picture
California is third-largest oil producing state in the nation, producing over 500,000 barrels of crude a day. 38% of the state’s crude oil and 11% of our natural gas supplies come from California production. All of our state’s production is refined and consumed in California – primarily for transportation fuels. The industry employs over 113,000 people who earn over $18 billion annually in payroll.
When it comes to oil, California is an energy island and receives its oil supply strictly from in-state production and tanker deliveries. Unlike natural gas, California does not receive any crude oil deliveries from interstate pipelines. As a result, policies that suppress the ability of CIPA’s members to drill new projects and grow their production increase our state’s dependence on tankered imports from foreign countries.
The Role of Independent Producers
Independent producers are currently responsible for the majority of new exploratory wells being drilled in California and the United States as the major companies increasingly turn their investment capital to overseas projects. In California, CIPA’s members account for roughly 70% of all the oil produced in the state and nearly all the natural gas that is currently produced.
Developing and producing a domestic oil field is a highly capital intensive endeavor. To succeed over the long term, independent producers must reinvest the majority of their revenue stream back into their business. National trends in drilling activity clearly demonstrate this fact. National studies have shown that over the past several years independent producers are reinvesting between roughly 150% of their net revenue stream. In this sluggish economy, there are few industries able to invest and hire without government subsidies like the oil industry.
The Severance Tax is a Job Killer
Unlike most other states, California taxes oil and natural gas reserves while they are in the ground through an ad valorem property tax. Only three other states do this. Instead, most other states wait to tax oil until it is “severed” from the ground through a severance tax. California is the only state that allows cities and counties to impose severance taxes. Currently, 11 cities impose a severance tax on oil production. An additional statewide severance tax would devastate reinvestment; costing nearly 10,000 high paying jobs when the state can least afford it. The tax would also increase our dependence on foreign oil and increase greenhouse gas emissions as tanker traffic increases to make up for the lost domestic production.
Division of Oil, Gas and Geothermal Resources Permitting
The Division of Oil, Gas and Geothermal Resources (DOGGR) is required by law to process and approve new drilling permit applications in 10 days. Yet there are over 130 permits that have not been approved, some as old as two years. The Los Angeles Economic Development Corporation recently completed a study on the economic effects of drilling permit delays. They have found delays in the approval of permits in the oil and gas production industry in California are holding up an estimated $1 billion a year in capital investment in oil and gas field redevelopment. This translates into over 6,000 jobs, $425 million in labor income and $49 million in state and local taxes lost. Senator Rubio currently has a spot bill, SB 250 to begin to address this issue.
Turning Waste into Electricity
When oil is produced there is often associated natural gas. The vast majority of natural gas is cleaned and delivered to a utility pipeline for general use. When producers are unable to sell that natural gas, they must flare the gas. However, this natural gas could be used to generate electricity which can be used on-site as well as feed the grid. SB 682 by Senator Ron Calderon would treat electricity generated by waste gas similar to other combined heat and power projects. This would give producers the economic certainty needed to make their projects viable, while reducing the amount of flaring in the state and, consequently, reducing emissions. CIPA is the sponsor of SB 682.
For more information, contact Rock Zierman or Blair Knox at 916-447-1177.