In an opinion filed on September 17, and later ordered published on October 15, 2026, the Fifth District Court of Appeal reversed a judgment granting a writ of ordinary mandamus ordering the Department of Conservation, Geologic Energy Management Division (“CalGEM”) to issue a Project Approval Letter (“PAL”) to an oil field operator.  The plaintiff operator, San Joaquin Facilities Management, Inc. (“SJFM”), had sought approval from CalGEM, the state agency that regulates oil and gas extraction activities, for a project consisting of the drilling and use of up to 12 new water injection wells to dispose of “produced water” in the 11,745-acre Fruitvale Oil Field, an oil and gas field located in unincorporated Kern County and the City of Bakersfield.  The Court of Appeal held the trial court erred in finding the injection well project exempt from CEQA as part of an ongoing pre-CEQA private project (CEQA Guidelines, § 15261(b)) and ordering CalGEM to approve it.  San Joaquin Facilities Management, Inc. v. Department of Conservation et al. (2026) ___Cal.App.5th___.

As brief background, “produced water” is groundwater brought up from oil and gas reservoirs and separated from the hydrocarbons post-extraction, i.e., a wastewater byproduct of oil and gas well operations.  One method of disposing of it is to inject the treated wastewater into an underlying aquifer via a water injection well.  CalGEM administers the underground injection control (“UIC”) program and must issue a PAL for underground injection well projects to document its approval and any applicable conditions.

The Fruitvale Oil Field was discovered in the late 1920’s.  Some water injection began there in 1959, with 2 of its 32 water injection wells drilled that year and another in 1961; those 3 wells are the only such wells in the oil field drilled before April 5, 1973, with all remaining injection wells being developed after that date.  That date is key because in 1972, in the aftermath of and as part of its response to the Supreme Court’s landmark Friends of Mammoth holding that CEQA applies to private projects approved by public agencies, the Legislature enacted a statutory CEQA exemption for private projects approved prior to April 5, 1973, which exemption is implemented by CEQA Guidelines § 15261(b).  The “fly in the ointment” here, however, is that the implementing CEQA Guideline purports to go further than the statutory exemption by stating:

“(3) Where a private project has been granted a discretionary governmental approval for part of the project before April 5, 1973, and another or additional discretionary governmental approvals after April 5, 1973, the project shall be subject to CEQA only if the approval or approvals after April 5, 1973, involve a greater degree of responsibility or control over the project as a whole than did the approval or approvals prior to that date.”

(CEQA Guidelines, § 15261(b)(3).)

The trial court found SJFM’s proposed produced water injection well project statutorily exempt under this implementing Guideline because injection projects have taken place at the Fruitvale Oil Field since 1959 and the new wells were a normal part of an ongoing injection project; it therefore granted a writ directing CalGEM to issue the PAL without conducting an initial study under CEQA as it had tried to require.  However, the trial court agreed with CalGEM’s position in rejecting SJFM’s arguments that the injection well project was also categorically exempt under the Guidelines’ Class 1 (existing facilities) and Class 4 (minor alterations to land) exemptions.

In reversing, the Court of Appeal held that the project was subject to CEQA (albeit for different reasons than those erroneously proffered by CalGEM in the administrative record).  It held that CEQA Guidelines § 15261(b)(3) is invalid as improperly purporting to create an additional CEQA exemption for post-April 5, 1973 projects that was never authorized by the Legislature, and which was beyond OPR’s authority to promulgate.  (Citing Azuza Land Reclamation Co. v. Main San Gabriel Watermaster (1997) 52 Cal.App.4th 1165, 1218-1219.)  It further held that, even assuming arguendo the Guideline is valid, the scope and extent of the regulatory authority now exercised by CalGEM over oil and gas operations has evolved and expanded substantially since the time of the pre-April 5, 1973 Fruitvale Oil Field project approvals, such that the purported exemption was rendered inapplicable even under its own terms.  In other words, “[b]ecause the issuance of a PAL entail[s] ‘substantially more responsibility’ [citation] and ‘substantially greater control’ [citation] over water injection wells in the Fruitvale Oil Field than approvals obtained in 1959 and 1961, the statutory exemption for ongoing pre-CEQA private projects cannot apply.”  The Court distinguished authorities relied on by SJFM pertaining to the distinct statutory exemption for ongoing pre-CEQA public projects (§ 15261(a)) as inapposite.

The Court of Appeal went on to agree with the trial court’s rejection of SJFM’s alternative categorical exemption arguments.  It held that the Class 1 exemption applies to negligible expansions of use of existing structures or facilities, not the construction of new structures such as the 12 new water injection wells proposed by SJFM.  (Citing, inter alia, Sunflower Alliance v. Department of Conservation (2026) 20 Cal.5th 22, 45, my July 8, 2026 post on which can be found here.)  Further, it held the Class 4 exemption for “minor alterations to land” did not apply because substantial evidence in the record showed the project involved drilling multiple wells to an average dept of 4,500 feet – an undertaking the scope of which it could not reconcile with the Guideline’s illustrative examples or the required narrow construction of categorical exemptions to afford the fullest possible environmental protection.

In reversing and directing the trial court to deny SJFM’s writ petition, the Court of Appeal dismissed SJFM’s cross-appeal of the trial court’s order striking its prayer for CCP § 1021.5 attorneys’ fees as moot (since its ruling negated the possibility that SJFM could be a “successful party” eligible for such a fee award), and awarded costs to CalGEM.

Questions? Please contact Arthur F. Coon of Miller Starr Regalia. Miller Starr Regalia has had a well-established reputation as a leading real estate law firm for more than sixty years. For nearly all that time, the firm also has written Miller & Starr, California Real Estate 4th, a 12-volume treatise on California real estate law. “The Book” is the most widely used and judicially recognized real estate treatise in California and is cited by practicing attorneys and courts throughout the state. The firm has expertise in all real property matters, including full-service litigation and dispute resolution services, transactions, acquisitions, dispositions, leasing, financing, common interest development, construction, management, eminent domain and inverse condemnation, title insurance, environmental law and land use. For more information, visit www.msrlegal.com