Staff Contact: Kathryn Lehr Planner s Phone: Hwy 101. Town of Orcutt

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1 SANTA BARBARA COUNTY PLANNING COMMISSION Staff Report for the Teixeira Appeal of Greka Oil & Gas Golco/Lakeview Return to Production Project, Case No. 14LUP Deputy Director: Peter Cantle Staff Report Date: September 21, 2016 Division: Energy & Minerals Case No.: 14LUP /15APL Supervising Planner: Errin Briggs Environmental Document: CEQA Exemption Supervising Planner Phone: Per Section 15270(a) Staff Contact: Kathryn Lehr Planner s Phone: APPLICANT Jeanette Boyer Greka Oil and Gas 2617 East Clark Avenue Santa Maria, CA (805) APPELLANT Gary Teixeira Teixeira Ranch Inc Richview Road Santa Maria, CA (805) ATTORNEY FOR APPELLANT Edward Renwick Hanna and Morton LLP 444 South Flower Street, Ste (213) Town of Orcutt Hwy 101 Project Site This site is identified as Assessor Parcel Numbers , -042 & , located approximately 4 miles east of the town of Orcutt, 4399 Dominion Road, Santa Maria Valley, Fourth Supervisorial District. Application Filed: October 14, 2014 LUP approved: May 18, 2015 Appeal Filed on: May 26, REQUEST Hearing on the request of Mr. Gary Teixeira to consider the Appeal, Case No. 15APL , of the Director s decision to approve Land Use Permit, Case No. 14LUP , for the Greka Oil and Gas Golco/Lakeview Return to Production Project, in compliance with Chapter of the County Land Use and Development Code. The project site is located at 4399 Dominion Road in the Santa Maria Valley area. The properties are comprised of 1, acres ( , -010, -019, - 025, -029, -031, -032, -034, -035, -037, -039, -040, -041, -042 & , -025, -027, -028) and are zoned AG-II-40 and AG-II-100, located at 4399 Dominion Road on the Lakeview and Golco Leases in the State-Designated Santa Maria Valley Oilfield, 4th Supervisorial District.

2 Page RECOMMENDATION AND PROCEDURES Follow the procedures outlined below and uphold the appeal, Case No. 15APL and deny the project, Case No. 14LUP , based upon the project s inconsistency with the Land Use and Development Code, and the inability to make the required findings. Your Commission's motion should include the following: 1. Uphold the appeal, Case No. 15APL ; 2. Adopt the required findings for denial of the project specified in Attachment A of this staff report; and 3. Determine that the denial is exempt from CEQA pursuant to State CEQA Guideline Section 15270(a), included as Attachment C; and 4. Deny de novo, the project, Case No. 14LUP , thereby reversing the decision of the Director. Alternatively, refer back to staff if the County Planning Commission takes other than the recommended action for appropriate findings and conditions. 3.0 JURISDICTION This project is being considered by the County Planning Commission based on Section A.3.d of County Land Use and Development Code which states the following: Director decisions. The following decisions of the Director may be appealed to the Commission: d. Any decision of the Director to approve or deny an application for a Coastal Development Permit or Land Use Permit. 4.0 ISSUE SUMMARY The Director of Planning and Development (P&D) approved Land Use Permit Case No. 14LUP for Greka Oil and Gas (Greka) on May 18, Mr. Gary Teixeira, the owner of one parcel included within the Golco Lease (APN ), and owner of neighboring parcels, appealed the approval and raised numerous issues. Mr. Teixeira subsequently narrowed the scope of his appeal in August of 2016, which is summarized below and included as Attachment E. Applicants for oil and gas projects are required to fill out the Oil & Gas Supplement form when applying for a Land Use Permit. The Oil & Gas Supplement requires the applicant to provide P&D with detailed information about the nature of the proposed project and the characteristics of the oil and gas targeted for production. P&D relies on this information to

3 Page 3 determine the appropriate permit path for each project and which conditions would be needed to mitigate each project s potential impacts. As submitted, Greka s Land Use Permit application and Oil & Gas Supplement form for the proposed project did not disclose the high (> 80,000 ppm) hydrogen sulfide (H 2 S) levels that are present in the site s natural gas, nor did it disclose the need to use large amounts of sodium hydroxide (caustic soda) for the processing of the H 2 S-laden gas. In fact, Greka provided representative gas analysis data that showed H 2 S concentrations to be 0 ppm. Because H 2 S can be deadly in small concentrations and creates pollution upon combustion, it is removed from produced gas by special equipment before the gas can be used onsite as a fuel. Greka had intended to use up to 13 barrels (or 546 gallons) of sodium hydroxide per day in order to remove H 2 S contained in the site s produced gas. P&D staff was only made aware of the high H 2 S levels and the use of large amounts of sodium hydroxide through information provided by the appellant. Staff verified the information through review of Division of Oil, Gas and Geothermal Resources (DOGGR) documents and historic documents from the Santa Barbara County Air Pollution Control District (SBCAPCD) Hearing Board. The project could result in significant impacts to health and safety due to significantly high levels of H 2 S in the produced gas and the use of large amounts of sodium hydroxide at the site. Residential and agricultural uses exist near the proposed project and could be impacted by a potential gas or chemical release. Given the concentration and toxicity of H 2 S found at the Golco and Lakeview lease areas, the project has the potential for significant impacts to the health and safety of surrounding neighbors. To evaluate the potential impacts associated with the approved project, staff requested that Greka prepare a Health Risk Assessment (HRA) and Quantitative Risk Analysis (QRA) subsequent to the appeal filing. To date, Greka has not produced these analyses. Had staff been aware of the high H 2 S levels and proposed quantities of sodium hydroxide needed for gas processing, the requested Land Use Permit would not have been approved and Greka would have been requested to submit an application for an Oil Drilling and Production Plan. There is substantial evidence to show that the project may result in significant health and safety impacts to surrounding neighbors. Therefore, pursuant to LUDC Section C.4, Criteria and standards for exemption of oil/gas drilling projects from approval of Oil Drilling and Production Plan, staff recommends that the Planning Commission not make the required findings for approval of the project under a LUP due to inconsistencies with the LUDC. If the applicant wishes to pursue the project an Oil Drilling and Production Plan is required. Thus, staff recommends upholding the appeal and denial of the project.

4 Page PROJECT INFORMATION 5.1 Site Information Comprehensive Plan Designation Ordinance, Zone Site Size Present Use & Development Surrounding Uses/Zone(s) Access Other Site Information Public Services Site Information Agriculture (40-acre minimum parcel size), Rural County Land Use and Development Code, AG-II-40 (Agriculture) 1, acres (Total) Agriculture, residential development, oil and gas development North: Agriculture, AG-II-40 South: Residential, RR-10, 1-E-1, Agriculture, AG-II-40 East: Agriculture, AG-II-100, Residential, 1-E-1 West: Residential, RES-1, 10-R-1, 3-E-1, 2-E-1, RR-10, RR-5, DR-3.3, AG-II-100 East Clark Avenue, interior agricultural roads N/A Water Supply: Private Well Sewage: Private septic system Fire: Santa Barbara County Fire Protection District Police Services: County Sheriff 5.2 Project Setting The project site is located in the Santa Maria Valley approximately 4 miles east of Orcutt, in a rural area characterized by agricultural lands, residential development and oil and gas fields. The project would occur on 3 parcels located within the Golco and Lakeview Leases. Topography within the project site is generally flat and consists primarily of heavily tilled soils (classified as non-prime and prime soils; Class 2), row crops, and greenhouse structures used as part of ongoing farming operations. Development within these leases also includes interior dirt roadways, oil well pads, staging areas, office headquarters, and two idle oil and gas production facilities. Areas surrounding the facilities and existing well pads are generally used for residential development and agricultural purposes, including ongoing activities such as tilling, and planting. The project site is bordered by cultivated agricultural lands on the north, Dominion Road on the east, East Clark Avenue on the south, and Telephone Road on the west. A residential community is less than 0.5 mile southwest of the project site. The existing idled Lakeview Gas Plant and the Golco Oil and Gas Processing Facility are located west of Dominion Road and north of Clark Avenue. The Golco processing facility covers a 5.8- acre footprint. Development within the site includes previously abandoned and unmaintained equipment associated with historic oil and gas processing activities from the late 1980 s (i.e., well heads, field gas compressors, heater treaters).

5 Page Project Description Greka s request is for a Land Use Permit (Case No. 14LUP ) to allow for reactivation of oil and gas development at Greka s existing Golco Production Facility on the Golco and Lakeview Leases in the State-Designated Santa Maria Valley Oilfield. The project would include returning 39 existing idled wells to production (34 oil and gas production wells, 5 water injection wells), reactivating existing processing equipment, installing new processing equipment, and constructing a buried pipeline (2.37-miles). The project would be constructed on previously disturbed sites within the State-Designated Santa Maria Valley Oilfield. The idled wells are located on existing well pads and all equipment would be located within the footprint of the existing Golco Production Facility and Lakeview Gas Plant (the facilities). A buried pipeline approximately 12,500-feet (2.37-miles) in length would be constructed within existing interior agricultural roadways and transport produced fluids from the wells to the existing facilities for separation into oil, water, and gas. Produced water would be transported to the five water injection wells and injected back into the Monterey and Santa Margarita Formations. The pipeline would cover a temporary construction footprint of 0.86-acres. Estimated grading quantities for pipeline installation would include approximately 5,555 cubic yards of both cut and fill. Grading activities would be limited to trenching for the proposed pipeline. The project would not include construction of additional well pads or result in expansion of the existing site. The Lakeview Gas Plant would not be reactivated as part of the project. Regional access to the project site would be provided by Clark Road and local access would be provided by existing interior agricultural roads. The project site would be gated to prevent public access during reactivation operations. No steam generation, enhanced oil recovery techniques, or hydraulic fracturing would be included with the project. The project would incorporate the following development standards to reduce potential effects on sensitive species and habitat, such as the California Tiger Salamander (CTS), California Red-Legged Frog (CRLF), and Western Spadefoot Toad (WST): A qualified biologist would present environmental awareness training to all onsite workers prior to the start of the first day of work for the project. The presentation would include information about the status of potential special-status species occurring in the project area, including CTS, CRLF, WST, and others; their legal protections and reasons for their decline; identifying features of the species; the specific measures that would be implemented to protect these species; and what to do if one is observed. The presentation would be repeated as necessary for new workers as they come onto the project site. Site preparation and grading activities would be conducted during the dry season of the year only (May 1 through October 31). Prior to the start of construction activities, the facilities and well pad sites would be enclosed with silt fence or similar fabric material. The fence would be buried 6- inches deep and extend at least 30-inches above ground. The fence would remain in place and would only be

6 Page 6 removed when construction activities have been completed and associated equipment is off the site. Construction activities would be limited to previously disturbed areas (e.g. pads, roads, staging areas, cleared agricultural areas). Access to the project sites would be restricted to pre-existing roads. Prior to project activities taking place at the facilities, a qualified biologist would survey the site for the presence of small mammal burrows. If burrows are found, they would be marked for avoidance. Project activities would avoid impacts on small mammal burrows to the greatest extent feasible. To avoid the potential for entrapment of wildlife, the trench for the 2.37-mile pipeline would be backfilled at the end of each work day. This would require an incremental construction method (excavation, installation of pipe, and backfill). The project would incorporate the following measures to reduce potential releases of crude oil production and/or natural gas: No portion of well site equipment or processing area equipment shall be located closer than 100 feet from any occupied receptor (i.e. residences, business or agricultural gathering locations) aside from agricultural fields or roadways; Fencing would be secured around each well site and the processing facility areas, and access gates would be secured at all entrances; Landscaping that can be climbed shall be limited near the facility areas; Emergency contact information, contact information for the Santa Barbara County Planning and Development Department and Air Pollution Control District, and site access limitations would be posted at the project site; All facility equipment (well sites and processing equipment) would be enclosed with a berm that could contain 110% of the largest spill size, including a 50-year rain event. Drains out of the bermed areas would be valve and locked closed. Construction activities for the proposed project would include installation of replacement tanks, pipelines, and related mechanical equipment, which is estimated to last a total of 180 days. Upon completion of reactivation activities, the following permanent production equipment would be reactivated and/or installed: Status Existing Equipment Oil & Gas Wellheads # of Units Heater Treater 2 Field Gas Compressor Size Throughput Fuel 34 N/A N/A Electric 3.5 MMBtu/hr TBD Field Gas hp N/A Field Gas Crude Tank 2 2,000 BBL 1,000 BOPD N/A Produced Water Tank 2 2,000 BBL N/A N/A

7 Page 7 Status Proposed Equipment # of Units Size Throughput Fuel BOSS Thermal 20/MMBtu/h 1 Oxidizer Unit r Produced Gas Free Water Knock-Out 1 TBD TBD N/A Vapor Recovery 2 N/A TBD N/A Compressor Loading Rack 1 TBD 160 bbl/hr N/A Injection Pumps 3 TBD N/A Electric Fire Water Tank 1 TBD N/A N/A Produced fluids would be transported to the existing facilities via a buried pipeline for separation into oil, water, and gas. Produced oil would be trucked out as necessary from the facility. The expected maximum level of oil production for this project is 2,500 barrels per day. Produced water would be re-injected into the Monterey and Santa Margarita Formations via the five injection wells. All field gas would be consumed by the Boiler, Oxidizer, and Scrubbing System (BOSS). Any production wells deemed to be at the end of their productive life would be plugged and abandoned in accordance with California Department of Conservation Division of Oil, Gas and Geothermal Resources (DOGGR) and Santa Barbara County Petroleum Unit standards. Following well abandonment, graded pads would be cleared of debris and any facility items including pipelines. The properties are comprised of 1, acres ( , -010, -019, -025, -029, -031, -032, - 034, -035, -037, -039, -040, -041, -042 & , -025, -027, -028) and are zoned AG-II-40 and AG-II-100, located at 4399 Dominion Road on the Lakeview and Golco Leases in the State- Designated Santa Maria Valley Oilfield, 4th Supervisorial District. 5.4 Background Information The existing wells on the Lakeview and Golco Leases were originally installed in the 1950 s and installation of additional wells continued through the 1970 s. The Lakeview Gas Plant was constructed in the late 1970 s for the specific purpose of removing high concentrations of H 2 S from the produced gas. The plant previously handled as much as 3.67 million cubic feet of raw natural gas per day. After removal from the produced gas, sulfur was then distributed in solid form (sulfur cake) to local farmers for use as a soil amendment. Scrubbed gas was used onsite to fuel operations and in an onsite cogeneration operation. The Lakeview Gas Plant and Golco Oil and Gas Processing Facility were shut down in 1988 and have remained idle since. The approved project includes the reactivation of the idled wells and the Golco Oil and Gas Processing Facility. However, the Lakeview Gas Plant would not be reactivated as part of the project.

8 Page Project Appeal Issues Appeal Issue #1: Hydrogen Sulfide 6.0 PROJECT ANALYSIS The appellant asserts that the proposed project would generate toxic air contaminants such as hydrogen sulfide. The wells on the Lakeview and Golco lease have historically produced dangerous levels of Hydrogen Sulfide Many well reports on the Lakeview and Golco wells state the following This lease is known for its LETHAL concentration of H 2 S. In one report, on the Lakeview 53-8 well, there is a note dated that states Bill McCable was overcome by H 2 S and treated at Marian Medical Center Due to the high levels of H 2 S of the proposed wells the statement in the application that all field gas would be consumed by the Boiler, Oxidizer and Scrubbing System (BOSS) is likely not viable. I live near the proposed wells and am afraid of the threats the H 2 S gas may pose to my family s health. H 2 S levels on the leases needs to be further reviewed by Santa Barbara County and therefore this permit should not be granted. I also own and farm the surface of the Golco lease and own and farm what used to be referred to as the Nicholson lease. I am also concerned about the safety of my employees. (Appeal Letter dated October 13, 2015) Greka furnished, as a "representative gas analysis," one showing zero H 2 S. Nothing could be further from the truth. Indeed the Clark Avenue area of the Santa Maria Valley Field has the highest concentrations of H 2 S of any oil and gas field in the State of California. It is not the presence of H 2 S that makes the Clark Avenue area unusual What makes the Clark Avenue area unusual is that the concentrations of H 2 S are so high. That in turn raises many other issues including the above referred to risk of upset, safety, design, compatibility with the neighborhood, risk that the proposed equipment will not operate as designed, air quality and others. (Appeal Letter dated August 12, 2016) Staff Analysis High levels of hydrogen sulfide can have immediate health effects, causing serious injury and fatality. According to the Agency for Toxic Substances and Disease Registry, a federal public health agency of the U.S. Department of Health and Human Services, H 2 S odors are detectable to humans at concentrations much lower than those associated with health impacts (e.g., ppm) (Attachment G). Due to the high concentrations of H 2 S in the site s natural gas, releases from piping and processing equipment have the potential to produce not only odors, but significant health and safety impacts offsite. Releases could occur due to normal operations from leakage from equipment (fugitive emissions) but, more importantly, from upset scenarios, such as crude oil tank hatch releases and pipe or valve breaks.

9 Page 9 The appellant provided information documenting the historic H 2 S levels for the Clark Avenue area of the Santa Maria Valley Oil Field, which includes the Lakeview and Golco leases (Attachment H). Available data from a DOGGR manual titled Drilling and Operating Oil, Gas and Geothermal Well in an H 2 S Environment highlights the H 2 S levels within the Clark Avenue area of the Santa Maria Valley Oil Field prior to 1976 (Attachment H). H 2 S levels of up to 270,000 ppm were documented coming from the Monterey formation within this area. In the 1960 s, H 2 S was burned in heater treaters and gas engines, however, due to growing development in the area, odor complaints resulted in implementation of SBCAPCD Rule 311, which ultimately limited the concentration of H 2 S in fuel gas to 796 ppm. Documentation from the SBCAPCD Hearing Board in 1982 indicated that H 2 S levels within Santa Maria Valley Oil Field ranged between 85,000 ppm and 115,920 ppm. Furthermore, Greka preliminarily estimated raw inlet H 2 S concentrations of approximately 60,000 ppm per volume in their SBCAPCD application (Attachment F). The project could result in significant impacts to health and safety due to significantly high levels of H 2 S in the produced gas at the site. Residential and agricultural uses proximate to the proposed project could be impacted by a potential gas release. Given the concentration of H 2 S found at the Golco and Lakeview lease areas and the compound s toxicity, the project has the potential for significant impacts to the health and safety of surrounding neighbors. To evaluate the potential impacts associated with the approved project, staff requested that Greka prepare an HRA and QRA subsequent to the appeal filing. To date, Greka has not produced these analyses. There is substantial evidence to show that the project may result in significant health and safety impacts to surrounding neighbors. Therefore, pursuant to LUDC Section C.4, Criteria and standards for exemption of oil/gas drilling projects from approval of Oil Drilling and Production Plan, staff recommends that the Planning Commission not make the required findings for approval of the project under a LUP due to inconsistencies with the LUDC. If the applicant wishes to pursue the project an Oil Drilling and Production Plan is required. Staff recommends that the appeal be granted and the project, Case No. 15LUP be denied. Appeal Issue #2 Hazardous Substances The appellant states that Greka provided, erroneous representation, that the hazardous substances to be used on the property would be typical of oil field production. And that Greka failed to disclose the presence of large volumes of sodium hydroxide (Caustic soda) a hazardous liquid that will be necessary to treat SO 2 produced when the H 2 S gas is burned (Appeal Letter dated August 12, 2016). Staff Response Item p of the Oil & Gas Supplement requires, A list and quantities of any hazardous materials proposed to be stored/discharged/produced or used on the property temporarily or permanently. Describe the proposed use and method of storage and disposal. As part of their P&D application, Greka stated that hazardous substances typical of oil field production would be

10 Page 10 used onsite. However, Greka s application to the SBCAPCD included the use of approximately 13 barrels (546 gallons) per day of sodium hydroxide (caustic acid) to treat sulfur dioxide (SO 2 ), a by-product of combusting H 2 S-laden gas (Attachment F). Greka failed to disclose this information in their application to P&D. The proposed quantity of 13 barrels per day illustrates Greka s anticipation and knowledge of high H 2 S levels at the site. Furthermore, a potential sodium hydroxide release from a truck accident or spill could have significant impacts due the proximity of surrounding sensitive receptors and the location of the trucking routes. Sensitive receptors in close proximity to the site that may be impacted by an upset scenario include both residential uses and agriculture where workers are present. A QRA and HRA would assess potential risk and health impacts associated with the handling and use of sodium hydroxide but Greka has failed to produce these key analyses. There is substantial evidence to show that the project may result in significant health and safety impacts to surrounding neighbors. Therefore pursuant to LUDC Section C.4, Criteria and standards for exemption of oil/gas drilling projects from approval of Oil Drilling and Production Plan, staff recommends that the Planning Commission not make the required findings for approval of the project under a LUP due to inconsistencies with the LUDC. If the applicant wishes to pursue the project an Oil Drilling and Production Plan is required. Staff recommends that the appeal be granted and the project, Case No. 15LUP be denied de novo. 6.2 Comprehensive Plan Consistency SAFETY ELEMENT REQUIREMENT Policy Hazardous Facility Safety 1-A - Risk Estimates: The County shall employ accurate estimates of risk associated with hazardous facilities to inform discretionary land-use decisions where substantial, preliminary evidence indicates involuntary public exposure to significant risk may result from the land-use decision. Policy Hazardous Facility Safety 2-A- Unacceptable Risk Involving New Development: Proposed new development that meets either of the following two criteria shall represent an unacceptably high level of risk and constitute a prima facie standard for denial of the proposed development. 1) All proposed development that registers mitigated risk in the red zone of the County's risk thresholds unless the proposed development is determined to be urban DISCUSSION Inconsistent. Greka s application to P&D did not disclose the high H 2 S levels present in the site s natural gas. The application did not disclose the need to use significant quantities of sodium hydroxide (caustic soda) for the processing of the H 2 S-laden gas. Given the level of H 2 S concentrations typically found within the Golco and Lakeview lease areas, and the potential of a sodium hydroxide release from a truck accident or spill, the project has the potential to result in involuntary exposure of the public to significant health and safety risks. To evaluate the potential impacts associated with the approved project, staff requested that Greka prepare a HRA and QRA. To date, Greka has not produced these analyses. Without this additional health and safety information, staff cannot accurately determine estimates of risk associated with the project. Therefore, the project would be

11 Page 11 dependent as defined in this supplement, it avoids exposure of highly sensitive land uses to significant risk, and no other feasible location is available. 2) All new development that registers mitigated risk in the amber zone of the County's risk thresholds if exposure of a highly sensitive land use would occur as result of project approval. inconsistent with these policies. 6.3 Environmental Review For purposes of this appeal, de novo denial of the project may be found exempt from CEQA pursuant to Guidelines Section 15270(a) Projects Which Are Disapproved. For more details, see Attachment C. 6.4 Zoning: Land Use and Development Code Compliance (LUDC) The County LUDC allows for approval of Land Use Permits for oil and gas projects that meet the criteria and standards listed in LUDC Section C. Oil and gas projects that do not adhere to these criteria are required to be processed under an Oil Development Production Plan. As noted in Appeal Issues 1 and 2 above, staff asserts the project may result in potentially significant impacts to healthy and safety, and as proposed, is inconsistent with Section C.4, Criteria and standards for exemption of oil/gas drilling projects from approval of Oil Drilling and Production Plan, which states the following: 4. No other significant impacts. The project shall not result in other potentially significant adverse impacts as determined by the Director. Without substantial evidence, such as an HRA or QRA to show that significant impacts will not result from the proposed project, the project is inconsistent with the requirements of LUDC. 7.0 APPEALS PROCEDURE The action of the Planning Commission may be appealed to the Board of Supervisors within 10 calendar days of said action. The appeal fee to the Board of Supervisors is $

12 Page 12 ATTACHMENTS A. Findings for Denial B. CEQA Exemption of Denial C. Approved Land Use Permit, Case No. 14LUP D. Site Plans E. Appeal Package (Case No. 15APL ) dated May 26, 2015, and Updated Appeal Letter dated August 12, 2016 F. Greka s SBCAPCD Application G. Agency for Toxic Substances and Disease Registry Hydrogen Sulfide Information H. Historic Lease Documents