On October 17, 2012, the Sierra Club and a number of other environmental groups filed a lawsuit to force the California Department of Conservation, Division of Oil, Gas and Geothermal Resources (DOGGR) to prepare an environmental impact report (EIR) for the drilling or reworking of oil or gas wells in California. In its lawsuit, the Sierra Club argues that DOGGR has failed to comply with the California Environmental Quality Act (CEQA) by approving the drilling of oil wells under: (1) CEQA’s categorical exemptions for minor alterations to land and activities at existing facilities; and (2) the more limited form of environmental review authorized by CEQA that results in preparation of a negative declaration or mitigated negative declaration. It is far less costly for a project proponent to qualify under a categorical exemption, a negative declaration, or a mitigated negative declaration, than under an EIR, which constitutes the highest level of environmental scrutiny available under CEQA.

The Sierra Club’s October lawsuit, filed in Alameda County, is similar to a CEQA lawsuit filed by a Kern County Sierra Club chapter in mid-July of this year. The July suit, now pending before the Kern County Superior Court, likewise asserts that preparation of an EIR is the only means by which the possible environmental impacts of well drilling can be addressed and mitigated. The notable difference between the two lawsuits is the October lawsuit’s use of the public’s concern over the effects of hydraulic fracturing as grounds for enjoining DOGGR from approving any further well drilling in California. Hydraulic fracturing is an oil and gas exploitation technique that has been used in California since the 1950s. It involves the high-pressure injection of water, sand and other chemicals into a well bore to fracture the hydrocarbon bearing formation to increase permeability and increase volumes of oil and gas that can be recovered. Citing various reports, the Sierra Club contends that hydraulic fracturing poses a host of health and safety concerns that must be analyzed in an EIR before a new drilling permit can issue. Although the Sierra Club acknowledges that not all wells in California are being hydraulically fractured, the Sierra Club has nevertheless requested that the Alameda Superior Court issue an order enjoining DOGGR from issuing any well-drilling or well-reworking permits without a full EIR process.

The filing of this lawsuit comes two weeks after the director of the Department of Conservation publicly announced that DOGGR intends to release draft hydraulic fracturing regulations by January 2013 and to adopt final regulations by the summer of 2013. Given DOGGR’s ambitious timeline, it is likely that the California courts will see more lawsuits like those filed by the Sierra Club in the coming months.

The Sierra Club lawsuits, if successful, would have a considerable impact on the California oil and gas industry. For many of California’s producers, preparation of an EIR for the drilling or reworking of every well would be cost prohibitive. Further, the extensive time necessary to prepare, submit and obtain approval of an EIR would result in substantial delays in increasing production from existing wells or bringing new oil and gas production online. The substantial costs of preparing an EIR and the accompanying loss of production during the time necessary to prepare and gain approval of an EIR may have significant economic ramifications for many oil and gas producers in California.