CIPA's importance seen growing as California property base changes

Bates, who took office at the group's annual meeting in Dana Point, Calif., last month, is the first chairman of CIPA to be based outside California. As general manager of domestic production operations for Vintage Petroleum Inc., he continues to maintain his home office in Vintage's Tulsa headquarters-under a company standard that all professional personnel remain in Tulsa rather than in field offices.

It was California's upstream opportunities that attracted Vintage to the state and the state's propensity for conflict with producers that drew Vintage to actively participate in CIPA. The company, which operates in seven US states as well as in Canada, Argentina, Ecuador, Bolivia, and Yemen, was built on a strategy of "acquire and exploit."

"California is strategic for us," Bates noted of Vintage. "Half of our domestic reserves are located in Californiaellipse60% of our (domestic) oil reserves are in California."

With operated gross production of 12,000 b/d of oil and 23 MMcfd of gas in the state, Vintage remains active in the Sacramento Valley, San Joaquin Valley, Santa Maria basin, Ventura basin, and to a minor degree in the Los Angeles basin. Having over half of its US oil reserves scattered across the state also exposes the company to the unique political and operating challenges that each area of the state presents.

"That is why we take a position of support in CIPA and have been actively involved in the organization since we came into the state," Bates noted.

CIPA's role

When Vintage first arrived on the scene in California-mainly through a flurry of acquisitions in the early 1990s-"We knew that the industry was a 'little bit different' in terms of regulatory and legislative ideas," Bates said.

"We were looking for help and expertise, we were looking for some advocacy on certain issues that we knew would arise."

Vintage's research led it to CIPA, which has been an advocate for independent oil producers in California for 26 years.

"We felt that we needed that support and became actively engaged in the organization," Bates said. "CIPA's a nonprofit nonpartisan organization that is an advocate for the free marketellipseThey want to eliminate duplicative regulation. They also want to stimulate recovery of domestic oil and gas resources and at the same time want to try to improve the image of the domestic oil and gas industry."

Of special importance to Bates and Vintage was CIPA's commitment to political advocacy on two fronts, both state and national.

"It was important to us that we have that advocacy in Sacramento for state issues while still getting the benefit of that relationship in Washington, DC," Bates said. "We're in the organization for advocacy reasons. We feel we have to stay actively involved in order to be profitable and do business in California."

Bates credits CIPA's success as primarily due to the active involvement of its member companies.

"The (CIPA) staff does an excellent job of identifying the issues and soliciting member companies' expertise to get involved in those issues."

Clean air concerns

Chief among those issues confronting California independent producers today is the Title V portion of the Clean Air Act, which covers the granting of federal air quality operating permits required to operate oil and gas facilities.

California is the only state that has stricter air regulations and rules than the federal government requires, Bates noted.

"We've already met those (federal) guidelines and more under the California state law, so we're going to be pushing for equivalency acknowledged by the federal government that we don't need to continue that duplicative regulatory aspect-that the California companies, under the guidelines which they operate by state law, meet and/or exceed the federal requirements."

Bates noted that Vintage spends $80,000-100,000/year on meeting federal operating permit guidelines under CAA Title V, "ellipseand that's just filing the pieces of paper needed to get those permits.

"Some of our smaller members might spend only $10,000, but those are real small members, and that money might be critical to their survival.

"That is a definite advocacy issue that can be fought both in Sacramento and in Washington that affects the bottom line of each and every one of our members."

The advocacy initiative on Title V equivalency for California producers was to get under way in mid-June in Washington with a lobbying effort by Bates and other CIPA representatives. It remains uncertain whether this lobbying effort could gain the desired result simply on the regulatory front with the US Environmental Protection Agency or whether legislation would be needed at the federal level as well. Either way, Bates expects to see a successful outcome in the next 12 months.

Another air quality issue confronting California independents centers on the San Joaquin Valley, where there is agreement among regulators and industry alike that achieving the region's air emissions standards will be impossible without virtually eliminating all industry-not just oil and gas-from the valley.

The solution for industry on that issue is in lobbying the local air pollution control district to secure approval from EPA to recategorize the region's federal air quality nonattainment status to "extreme" from "severe."

"If the air pollution control district decides toellipserecommend that (recategorization) on our behalf,ellipsestricter regulations would be required for us to meet; however, it would give us some flexibility in how to put together a plan to meet those stricter rules," Bates said.

Other issues

Beyond the 50 pieces of legislation CIPA currently is tracking in Sacramento and Washington, a principal cause of worry is the uncertainty over what future legislation might emerge from Sacramento as a politically driven response to the California energy crisis of the last several years.

"We anticipate that some significant issues will arise on the legislative front," Bates said, regarding the continuing controversy over natural gas and electric power shortfalls and commodity price spikes that have plagued the state in recent years.

CIPA committees are also at work on lobbying and education efforts in oil and gas tax matters and staking out California independents' positions regarding federal energy policy legislation, he noted. "We feel like we have an opportunity right now in Washington with the Bush administration to help secure some national energy policy bills, and we're looking forward to working with them over the next few years to help achieve that."

CIPA also is pressing initiatives on the regulatory front, particularly in efforts to expedite and streamline the drilling and well-permitting process in California. "Time is money," Bates explained. "The sooner that those things can happen, the better off companies are in planning their budgets for that year and for following years."

Sometimes the simple act of seeking redress at the regulatory level "takes care of the problem by itself," Bates noted. "Our friends at the (California) Division of Oil and Gas are real receptive to ideas from the industry.

"We try to bring some science to the regulations, and we can bring in some of our member companies that have special expertise to help us on those issues."

CIPA future

The changing oil and gas scene in California is reflected in the newly evolving structure of CIPA.

Not only is more of the new membership coming from companies based outside California, there is a growing emphasis on natural gas. CIPA has set up a spinoff association, the California Natural Gas Producers Association, to highlight natural gas issues-particularly in light of the controversy in recent years over gas supplies and prices in the state. CNGPA will continue to report to the CIPA board.

And a related electric power cooperative has sprung up to deal with power issues from the standpoint of both user and supplier, as many California heavy oil producers also operate cogeneration power plants to generate steam and power for their steamflood operations.

Bates is bullish on CIPA's future as the dominance of majors in the state's oil and gas production continues to erode.

"I see CIPA becoming increasingly a more important trade associationellipse," he said. "The makeup of the property base in California has been changed over the last several years. The majors have left, the independents have bought properties-as we all know, some companies are 'here today, gone tomorrow'-and those properties continue to change hands. It's independents that are picking up those properties and tending to operate them. So this trade organization and the advocacy efforts that it pushes to the forefront are going to be critically important to the survival of the oil and gas industry in California."

Career highlights

Larry Bates is general manager of domestic production operations for Vintage Petroleum Inc., a Tulsa-based independent with operations in seven US states and five other countries. Its core areas in the US are the Gulf Coast, Midcontinent, East Texas, and California. Bates was elected chairman of the California Independent Petroleum Association in early June, the first of what may prove to be two consecutive 1-year terms. He hails from Louisiana.

Employment

Shortly after college, Bates went to work for Chevron Corp. as a production engineer in that firm's offshore department. He left Chevron to work for Nelson Bunker and William Herbert Hunt at Hunt Energy Corp., Dallas, as a drilling and production engineer for their South Louisiana, Mississippi, and East Texas properties. Bates then joined Santa Fe Minerals Corp., Dallas, where he worked for about 10 years as an acquisitions engineer, reservoir engineer, and development supervisor. It was in 1992 that he and other executives at Santa Fe, including current Vintage CEO and Pres. S. Craig George, left to join Vintage. Bates moved to California in May 1992 as Vintage started making acquisitions in that state. He returned to Tulsa in 1995 to assume his current post, with oversight of production in Alabama, Mississippi, Louisiana, Texas, Oklahoma, Kansas, and California.

Education

Petroleum engineering degree, Louisiana Tech University.