February 7, 2023 – Capstone believes the California Fifth District Court of Appeal’s decision on January 26th to suspend Kern County oil and gas permitting, pending a review of allegations that a local ordinance to streamline approvals violates the California Environmental Quality Act (CEQA), is temporary. We expect the court to determine whether to extend or suspend the stay in the next 30 to 45 days. Importantly, we view the court’s determination on whether to extend the stay as the most impactful catalyst for Kern-based oil and gas operators.
There are three key catalysts that will impact the ability of Kern-based operators to secure new permits during the appellate court proceedings. Our initial research and outreach suggest a probability slightly higher than a coin flip (57%) that the court will rule in Kern County’s favor. However, we believe the process, range, and implications of the potential outcomes of the court proceedings are underappreciated.
A decision by the appellate court to extend the “temporary stay” would present a significant headwind for Kern-based oil and gas operators California Resources Corp. (CRC) and Berry Corp. (BRY). A permanent stay would place the onus on California’s Geologic Energy Management Division (CalGEM) to issue discretionary permits and perform necessary CEQA analysis. We expect the appeals court to issue its decision in 12 to 18 months.
CalGEM has a poor track record in processing the permits for operators, which is a source of criticism and scrutiny from industry participants. We do not anticipate that CalGEM will work through new permit applications expeditiously if the existing stay is upheld, challenging the ability of operators to secure new permits.
Appellate Court Proceedings and CalGEM Permitting Decision Tree