Local Oil and Gas Production Restriction Preempted in California

In 2016, voters in Monterey County, near San Francisco, supported a ballot initiative sponsored by Protect Monterey County (“PMC”), known as Measure Z, which banned the drilling of new oil and gas wells and banned particular oil production techniques like steam injection and wastewater injection, which increases fluidity or subsurface pressure in order to extract more oil. Chevron USA Inc. and other oil producers and mineral rights holders filed a total of six actions against the County, challenging Measure Z on various grounds, including state and federal preemption and inverse condemnation. On August 3, 2023, in Chevron U.S.A. Inc. v. County of Monterey, the California Supreme Court affirmed the decisions of the trial and appellate courts and struck down the voter-approved ban.

Relying in large part on case law such as Sherwin-Williams Co. v. City of Los Angeles (1993) 4 Cal.4th 893, 897, 16 Cal.Rptr.2d 215, 844 P.2d 534 (“Sherwin-Williams”), the Court found that state law reserves decisions such as that set forth in Measure Z to the State Legislature in the Public Resources Code. In Sherwin Williams, the Court had identified three ways in which a preempting conflict may arise: “if the local legislation duplicates, contradicts, or enters an area fully occupied by general law, either expressly or by legislative implication.” The Court found that Division 3 of the Public Resources Code (§ 3000 et seq.) governs California’s oil and gas operations and its implementing regulations (Cal. Code Regs., tit. 14, § 1712 et seq.) are “statewide in application for onshore drilling, production, and injection operations,” and “[a]ll onshore prospect, development, and service wells shall be drilled and operated in accordance with” them. PMC’s argument that Measure Z only placed locational restrictions on oil and gas operations, and that the Court’s earlier decision in Big Creek Lumber Co. v. County of Santa Cruz (2006) 38 Cal.4th 1139, 45 Cal.Rptr.3d 21, 136 P.3d 821 that “[p]reemption by implication of legislative intent may not be found when the Legislature has expressed its intent to permit local regulations” or “when the statutory scheme recognizes local regulations” precluded a finding of implied preemption, failed.

The Court found that, by providing that certain oil production methods may never be used by anyone, anywhere, in the County, Measure Z nullified and contradicted the Legislature’s mandate in Section 3106 that the State, through the supervisor of its Geologic Energy Management Division (“CalGEM”) “shall” supervise oil operation in a way that permits well operators to “utilize all methods and practices” the supervisor approves, and therefore usurped the supervisor’s statutorily granted authority. As a “genuine” conflict existed based on the state and local laws’ contradictory instructions, which cannot be reconciled, the County’s Measure Z was preempted by the supreme state law.

For further analysis of how this decision will affect interests related to oil and gas production in California, or if you have any questions relating to this article, please contact William F. Bresee.

William F. Bresee is a Partner with Leech Tishman and West Coast Co-Chair of the firm’s Construction Practice Group, and leads the Energy & Natural Resources Industry Group. He is based in the Los Angeles office and can be reached at 626.796.4000 or wbresee@leechtishman.com.

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