Showdown in San Ardo
NARO-California joins with Monterey County royalty owners in a battle vital to all California mineral owners.
San Ardo is a tiny community which sleeps among the agricultural fields in the southern reaches of Monterey County, a place where both land owners and their employees, people who depend on each other, live virtually side-by-side… A place where the locals meet at the solitary eatery, the San Ardo Cafe, to talk things over… A place where pleasantries are exchanged when residents stop by the local Post Office to pick up their mail. The kind of place where a stranger passing through generates a wave and a sometimes curious look… San Ardo is the kind of place which, at least outwardly, doesn’t seem to have changed much over the last seventy years or so. San Ardo is certainly an unlikely place to be the epicenter of a legal battle which, if lost, could mean the end of the onshore oil business in California…
Just a few freeway minutes south of the town lies the San Ardo oilfield, blessed with a unique geology which resulted in a large concentration of oil reserves which were first developed during the 1940’s and are now, by some estimates, the nation’s seventh largest oilfield. The San Ardo oilfield is the principal economic driver of the south county economy, providing substantial employment, income, and tax revenues to an otherwise rural economy. As just one example, the local school district derives over 80% of its revenues from property taxes generated by the San Ardo oilfield. Throughout its life, the San Ardo field has produced its oil safely and responsibly, using modern techniques to enhance its production and dispose of its waste with no evidence of undue pollution or environmental harm.
Just a few years ago, though, things began to change for San Ardo, for Monterey County, and for all of oil-producing California as concerns on climate change and the effects, real or imagined, of fossil fuel consumption, grew into action on the part of environmental activists. Teaming up with a San Francisco environmental law firm and outsiders like the Center for Biodiversity, activist groups began to mount a series of ballot initiatives throughout California, initiatives which sought to use County land-use authority to ban oil production activities which they labelled “extreme”, but which are, in reality, safe and reliable methods of enhancing the extraction of California’s heavier crude, techniques such as cyclic steaming, water and steam flooding, and many other common well-maintenance techniques. Despite the fact that California’s State Constitution specifically grants the Department of Oil, Gas, and Geothermal Resources (DOGGR) authority to regulate all down-hole activities involved in oil production, environmental groups attempt to circumvent the process by using County control of land-use policy to prevent activities in support of targeted downhole operations. Chief among their targets was hydraulic fracturing, or, in the vernacular of the zealots, “fracking”. Despite the fact that hydraulic fracturing is rarely used in the state ( DOGGR’s 2015 First Annual Report on Well Stimulation Treatment indicates use in only 3 counties with over 99% being in Kern County. None were performed in Monterey County). Modern production techniques , then, are the actual targets in their Quixotic battle against “fracking”. “Fracking” is simply the Trojan Horse which activists use to achieve their true goal, that being to end onshore oil production be eliminating those methods which make production economically viable.
While some early efforts provided largely symbolic victories in counties which lacked known oil reserves or production, such as Sonoma and other bay area counties, the first successful effort was in San Benito County, Monterey County’s neighbor to the east, with modest reserves and only a handful of producing wells… After passage of the measure, the local operator and royalty owners made the determination that a legal challenge was not economically feasible.
Another such effort was mounted in Santa Barbara County, labelled as Measure P, which County voters faced on the November 2014 ballot. Santa Barbara County lies some 90 miles south of Monterey County and has substantial oil production located in the north portion of the county. Most opposition came from the southern, more urban parts of the County in and around Santa Barbara. NARO-California was a very active participant in the battle leading up to the election, along with an outstanding coalition of oil owners, oil producers, labor unions, agricultural and industrial organizations, affected employees, public safety representatives from police and fire departments, and members of local government who depend on oil-generated property taxes for their financial solvency. Through the coalition’s cohesive efforts the public got the message, looked beyond the false “fracking” rhetoric, and sent the measure down with a resounding 66% NO vote.
Monterey County voters were faced with their Measure Z in 2016. Measure Z, written by the same San Francisco law firm which had created Measure P, was a new revision of the measure attempted in Santa Barbara County with the addition of a much more onerous provision to ban the use of injection wells or storage of produced water, thereby representing an even greater threat to the San Ardo oilfield than measures previously seen in the state.
While Measure Z was opposed vigorously by a broad coalition including producers, owners, employees, agricultural and business organizations, and government officials, as well as NARO-California, the numbers of south-county voters and affected parties were outnumbered by the more populous and environmentally active voters of tourism-driven north county cities such as Monterey, Pacific Grove, and Carmel and Measure Z was approved in the November 2016 election.
Almost immediately post-election, oil producers Chevron and Aera Energy filed for injunctive relief to halt implementation of the Measure, and they, along with San Ardo royalty owners initiated preparations to file suits to challenge Measure Z in California’s courts. At this time Aera and Chevron have launched their actions independent of royalty owners, while NARO-California has joined with nearly 70 royalty owners as plaintiffs in a soon-to-be-filed suit against Monterey County. Counsel will be Edward S. Renwick, Esq., of Hanna and Morton LLP, Los Angeles, CA, and local counsel Jacqueline M. Zischeke, Esq., Salinas, CA.
Key to both cases will be a challenge of Monterey County’s authority to regulate downhole activity in the face of California’s constitutional mandate that such authority has specifically been granted to the Department of Oil, Gas, and Geothermal Resources, thereby making Measure Z in violation of California’s constitution. The second element of the legal challenge is the issue of legislative takings, that is, a finding, under the United States Constitution, that just compensation is due to citizens whose assets, or the ability to capitalize those assets, have been lost due to legislative action.
The outcomes of these suits are pivotal in the battle for California’s petroleum producers and royalty owners to use their constitutionally-given freedoms to exploit their resources, for they will provide the precedents on which the future of energy production in the state are balanced. And, for the balance of the nation’s petroleum industry and owners, it is only too true that what begins in the Golden State is most often predictive of the nation’s future as a whole. This is a moment of great import for us all.
The Long Road to Justice for San Ardo Mineral Owners
San Ardo is a very small settlement lying just east of Highway 101 in the foothills of southern Monterey County, mostly unnoticed by highway travelers hurrying between Los Angeles and San Francisco or following their navigation waiting to make the turnoff toward Monterey and Carmel. It is mostly ignored except to those drivers who happen to look eastward toward the pump jacks and processing facilities of one of the most important oilfields in the state.
Most of San Ardo’s mineral owners are farmers and ranchers, cattlemen and horsemen, with deep roots in the area, descended from families which never intended to be in the oil business, but who found their fortunes changed in the mid-twentieth century when, due to mineral exploration and discovery, found themselves atop major oil reserves which would soon become one of the most significant energy resources in the state. In those times of the post WWII economic boom and California’s population growth, those resources were welcomed as a fundamental element of the state’s transformation to become the nation’s leading state economy.
Decades later, though, things began to change… Environmentalism grew in the 1970’s with growing concerns about pollution and man’s influence on the environment and, as the movement matured over the next few decades, ultimately emerged in the form of the climate change arguments we now are immersed in. Eventually, California’s rich petroleum resources, which had provided the economic foundation for the state’s transformation from a 19th-century agrarian economy to a 20th and 21st century powerhouse, were finding themselves being held in contempt as suspected contributors to climate change. Consequently, in a number of California counties, anti-oil ordinances were proposed in the form of ballot initiatives.
Monterey County found itself among those counties where mineral owners in rural areas of the county, those with deep roots who found their properties had become important energy resources, were threatened by anti-oil production initiatives formulated and supported by environmentally active progressive voters in more populous areas of the county. Typical of most, Monterey County’s mineral owners in San Ardo were threatened by the Measure Z initiative supported by progressive voters from far-away Monterey and Carmel. Like others, Measure Z was billed as an “anti-fracking” measure to inflame voters despite the fact that hydraulic fracturing had neither been used in Monterey County, nor had it been proposed since the geologic structure of its oil-bearing formations dis not require it. County voters spoke on the issue in the November 2016 election. Despite their best efforts to fight that campaign with the full support of NARO California and industry groups, they were inundated by the far-away votes from the north off the county, which passed Measure Z with 56% of the vote.
Undaunted, San Ardo mineral owners, on December 16, 2016, NARO-California, and Chevron launched legal challenges to overturn Measure Z, with their challenges ultimately being merged by the court into a single case. The defendants were Monterey County and Protect Monterey County (PMC), the group which sponsored the measure. It must be noted that PMC’s defense was supported in large part by Phoenix-based Center for Biological Diversity, which provided a considerable staff of attorneys and aides who participated throughout the trial. That case was concluded on December 29, 2017, with victory for San Ardo owners when Measure Z was found to be preempted by both the California Public Resources Code Section 3106 which provides that only the State Oil and Gas Supervisor has the authority to or not to permit new oil wells or to use wastewater injection, and by the Federal Safe Drinking Water Act. The judge further declined to rule on the hydraulic fracturing element, declaring the issue moot since hydraulic fracturing had not been conducted in the County. At that point, Monterey County opted to remove itself from further legal challenges by settling with the plaintiff groups.
Protect Monterey County, however, continued their efforts to salvage Measure Z by petitioning for review of the Monterey County decision to the 6th Appellate District Court, which agreed to hear their case. On October 12, 2021, that Court rendered their decision and handed Protect Monterey County their second defeat with their findings which upheld the earlier Monterey County Court decision in that Measure Z was preempted by Public Resources Code Section 3106.
Following the Circuit Court’s ruling, Protect Monterey County and the Center for Biological Diversity mounted an appeal to the Supreme Court of California, which, on January 26, 2022, agreed to review the lower Courts’ rulings. More than 18 months later, on August 3, 2023, the Supreme Court issued its ruling, a unanimous 7-0 decision to affirm the Appellate Court’s ruling that Measure Z is contradictory to, and conflicts with Public Resources Code 3106.
That ruling, after nearly seven years, and with any possibility of further review by the U.S. Supreme Court extremely remote, effectively renders Measure Z dead.
Seven years of struggle by the San Ardo royalty owners with the indefatigable support of NARO-California to free themselves from the threats imposed by Measure Z has, at last, allowed them to return to simpler lives, not entirely free from other threats spawned by environmental zealotry, but, for the immediate time being, improved…
This case should provide some assurance to California’s royalty owners that even in these times of radical environmentalism and legislative chaos the courts may continue to provide a refuge from unconstitutional challenges to their rights. It should also provide an admonition to legislators and special interests that their efforts, however much inspired by environmental alarmism and zealotry, must still conform to the State and Federal Constitutions. Our rights as citizens and royalty owners are immutable, and must be honored.
