‘Outrageous Conflicts Of Interest’: Watchdog Groups Urge California Gov. Gavin Newsom To Fire Oil Regulators


July 11, 2019


PALM SPRINGS, Calif. — Two consumer groups are calling on California’s governor to freeze all new oil drilling permits and to clean house at the agency that issues them after the organizations uncovered records showing that top state regulators and engineers held investments in Exxon Mobil, Chevron, BP, Valero and other petrochemical giants. 

Almost half of the 2,300 well permits issued in 2019 have benefited oil companies investedin by agencyofficials, the consumer groups said.

The pace at which fracking permits are issued has doubled since Gov. Gavin Newsom took office in January, and thousands of permits for new and re-used oil and gas wells have also been approved, angering environmental and public health groups who hoped for a phase-out of the state’s billion-dollar industry following the retirement of Gov. Jerry Brown.

Despite California’s global environmental reputation, large swaths of the state, including Kern County, Los Angeles and the Coachella Valley around Palm Springs still have the smoggiest air in the nation, largely due to tailpipe emissions and oil production.

Consumer Watchdog and FracTracker Alliance uncovered the regulators’ personal investments and permit data through public records requests, and the two groups shared the documents with The Desert Sun and the USA TODAY Network.

The investments were reported on required disclosure forms completed by agency supervisors or senior officials in March this year. The forms cover 2018 holdings of stock and other securities and show seven senior staff with investments in a dozen of the world’s top petroleum companies. 

The exact amounts are unclear, because the forms ask supervisors to simply indicate whether their investments are valued at less than $10,000 or between $10,001 and $100,000, or higher amounts.  

On Wednesday, the groups asked Newsom to put a freeze on all drilling permits and to clean house at the Department of Conservation’s Division of Oil, Gas and Geothermal Resources. Specifically, they asked him to fire the supervisors with reported oil investments, along with their top bosses,including State Oil and Gas Supervisor Ken Harris, who oversees the division​​ and signs off on permits.

“We have uncovered outrageous conflicts of interest at the state agency charged with oil and gas well approval and inspections that endanger the public. Oil regulators should not be invested in the same oil companies that they regulate,” wrote Jamie Court, president of Consumer Watchdog; Adam Scow, senior consumer advocate with the nonprofit; and Brook Lenker, executive director of FracTracker Alliance.

“This scandalous ethical breach is an opportunity to advance your stated goal of curbing drilling and fracking in the state,” they added. “Reform begins with ethical and honest regulation.”

Newsom’s office: We take charges ‘seriously’ 

Asked by The Desert Sun to respond to the allegations, the governor’s office said it was looking into the matter.

“We are aware of the allegations and we are taking them seriously. If a public employee is found to have unethically profited from investments in an industry he or she regulates, that’s unacceptable,” said spokesman Brian Ferguson. “This holds true not just at this particular agency, but across the government — accountability and transparency are guiding principles for Gov. Newsom, and he will hold all officials in his Administration to the highest standards in upholding the government code sections, [California Fair Political Practices Commission] regulations and department policies prohibiting financial conflicts of interest.”

Ferguson did not respond to questions about the 100% increase in fracking permits and other stepped up drilling permits in the past six months. 

The Department of Conservation’s Division of Oil, Gas and Geothermal Resources, commonly known as DOGGR, did not respond to requests for comment on Wednesday. 

Those employees who disclosed oil industry investments included:

  • The agency’s deputy director of programs, David Gutierrez, reporting to the state oil and gas supervisor
  •  The agency’s enforcement unit supervisor, Simeon Okoroike
  •  District supervisors, deputies and senior engineers in various oil-producing sections of the state

Nicholas Abu, a senior oil and gas engineer overseeing the state’s underground gas storage program, reported owning a side gas consulting business called Sandstone Reservoir Solutions.

The Desert Sun reached out to the eight supervisors who disclosed investments and consulting. Only one, Gutierrez, responded.

‘I’m trying to follow the rules’

Gutierrez told The Desert Sun that when he was hired less than two years ago, he informed DOGGR officials he held shares in Exxon Mobil and Magellan Midstream Partners and asked if he should sell them. He said he was told that because California was not currently regulating either company, he didn’t need to divest. He said he was told that if a conflict did arise, “you would just kind of step back” and leave decisions about the company to other agency officials. 

According to Gutierrez’s job description, he has “direct program management responsibility” of several statewide well programs and is responsible for compliance with state environmental laws. He’s also charged with formulating and implementing  policies to support DOGGR’s mission “to prevent damage to life, health, property and natural resources, while also encouraging the wise development of oil, gas and geothermal resources to increase the ultimate recovery of these natural resources.”

He filled out Form 700 as required this March, checking the boxes showing that in 2018, he owned between $10,000 and $100,000 worth of investments in Exxon and Magellan. 

He said as soon as the agency received a Public Records Act request from the two watchdog groups in late April and he was notified, he “instantly” sold the stocks. He said, “I asked our legal office and I asked our ethics attorneys” and  “they calmed me down and said ‘don’t worry about it.’ ” 

“I’m trying to follow the rules,” Gutierrez said. 

He said he earned about $14,000 by selling 200 shares in Exxon Mobil, and about $25,000 from just under 400 shares he had owned in Magellan. He said he had owned both sets of shares for at least 10 years and had all but forgotten about them. Prior to DOGGR, he said he was in the federal sector, and held a variety of posts in Washington, including “doing national security work.”

Gutierrez also said he is not involved in permitting, and wasn’t aware until April that Aera Energy was a subsidiary of Exxon Mobil, one of the companies in which he owned stock. 

Aera Energy, which is jointly owned by Exxon Mobil and Shell affiliates, has received the lion’s share of fracking permits this year, and says on its website that it spent most of 2017 “educating” DOGGR about why an alternative method to verify well integrity would work. Without DOGGR approval, it “might have been forced to spend millions of dollars abandoning and re-drilling wells.” 

Court, the president of Los Angeles-based Consumer Watchdog, was harshly critical of Gutierrez’ response, saying that the highest-ranking civil servant in the agency overseeing the oil industry should know that Aera and Exxon Mobil are linked, and if he doesn’t, he should find a new job.  

211 fracking permits in first half of 2019

Others said it is not just conflicts of interest that are at stake, but public health. They want the oil industry phased out completely in the Golden State, both to stem climate change and to keep dangerous toxics out of air and water. 

Since Newsom took office, DOGGR has been issuing permits for controversial hydraulic fracking at twice the rate they were issued under Brown, according to a Desert Sun review of records: 211 permits were issued in the first half of 2019, compared to 223 in all of 2018 and 228 the year before. 

Batches of applications are being processed in as little as three weeks, with most going to Aera Energy. Key positions in the agency also continue to be held by former California oil company executives, engineers and other industry staff.

An analysis by the Last Chance Alliance — a network of organizations that says it was  “formed to address the ongoing climate, health, and environmental justice emergency caused by the oil and gas industry in California” — found at least 20 of DOGGR’s appointments and hires during Brown’s tenure came from oil companies operating in the state, and, the group said, all are still there, including two top officials.

William “Bill” Bartling, a DOGGR chief deputy who oversees field operations across the state, previously headed or managed several oil-related companies, and worked for Chevron for 14 years. Chevron has received 616 permits from DOGGR this year for new wells or to rework existing wells. Bartling did not report any investments in oil companies.

The so-called “revolving door” and accelerated permitting has concerned environmentalists. Many hoped for major change under Newsom, who signed a pledge not to take any oil industry donations during his campaign. 

But backers of the industry note that its products play a vital role in everyday life, not just in transportation but in myriad other products. The Western States Petroleum Association or WSPA, a lobbying and trade group, as well as major oil companies, have routinely been among the largest donors to candidates. They are also active in opposing or supporting ballot measures seen as harmful or helpful to the industry. There are 368,000 jobs in California connected to oil and gas operations, with $24.6 billion in tax revenues, according to WSPA’s website. 

Foes of the industry are heartened that Newsom included $3 million in his first budget for a pair of studies: one on how to phase out fossil fuel use in California and the second on accelerating electric vehicle use. But they say that’s hardly enough.

“DOGGR continues to roll out the red carpet for and is doing the bidding of the industry they’re supposed to be regulating,” said Kassie Siegel, Climate Law Institute director for the Center for Biological Diversity, who is based in the Morongo Valley. “The agency has done nothing to change its culture.”

Calls for change for years

DOGGR was often riven by controversy during Brown’s tenure. An independent science commission in 2015 determined there were large, unknown risks due to fracking and a second oil extraction technique. The panel recommended a suite of changes to current policies, including a 2,500-foot buffer between oil production facilities and schools and homes, an end to unlined wastewater pits and other measures designed to protect public health and groundwater aquifers near drilling sites.

Under increasing scrutiny by the legislature since the report, DOGGR has pledged for the past four years to put public health front and center as part of an overhaul.  But it has not instituted a buffer zone or other recommendations.

The Golden State is the fifth-largest producer of oil in the nation, extracting and refining about 200 million barrels per year, though production has been gradually declining since 1990. To tap last bits of oil in largely exhausted fields, energy companies are increasingly turning to hydraulic fracturing, or fracking, blasting steam down boreholes to fracture rocks holding remnant crude oil.

Oil extraction, production and use have been linked to air and water pollution and serious illness. The Central Valley, greater Los Angeles and the Coachella Valley have the worst ozone smog in the nation, according to air quality regulators. About 80% of that pollution comes from cars, trucks and trains that use petroleum, while another large chunk comes from refineries that process the oil into fuel.

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