American Oil and Gas Reporter - July 2015 - 156

ConventionCoverage: California Independent Petroleum Association
Californians."
Unfortunately, he assessed, California
is losing residents because too many
people find it too expensive or impractical
to live and do business there. "My parents
left California for Oregon; my brother
lives in Arizona," Allen illustrated. "The
reason so many people have left is because
California has the highest taxes, the worst
business environment, the worst litigation
environment, and-by the way-our regulations are not too good, either.
"This state is going off a cliff, and it
is up to the responsible adults in the
room to stop it," he added. "I am in the
general assembly for one thing: to make
California business friendly again."
Instead of constantly putting out
metaphorical fires on one issue after another, he urged CIPA to seek structural
improvement by sending good people to
office. "It is not enough to win on a
given issue," Allen held. "We need better
people at every level of government."

Renewable Credits
Although lawsuits may stymie California's plans for its low-carbon fuel
standard (LCFS), Chief Executive Officer
Rock Zierman said CIPA was preparing
for the next phase of its enactment. While
the LCFS's regulated entities are downstream from the oil and gas patch, he
added, refiners will need credits to meet
their compliance schedules.
The question for producers, Zierman
said, is how they can generate credits by
lowering their carbon footprints. "That
allows refiners to comply with the LCFS
while protecting their market share, because when they use a credit rather than
blend an additional gallon of ethanol,
they are selling their product instead of
reselling something they had to import,"
he observed.
It also provides cash flow for the producer, he continued. "You generate LCFS
credits when you deploy renewable energy
in your operations," he advised, adding,
"Many of the rates for these sources are
competitive, so you can lock in a favorable
electricity rate for 20 years."
Manatt, Phelps & Phillips' Costantino
told producers that obtaining credits would
require them to opt in as a regulated party.
"Certain record keeping and enforcement
comes along with that," he acknowledged.
"But you become owner of the credits
with the power to sell them."
As for those credits' value, ICF's Sheehy
indicated they had been selling for $15-

$25 a ton throughout the past year, and had
traded in the low-to-mid $30s in the days
immediately preceding CIPA's convention.
He indicated his firm's analysis projected
LCFS credit values were trending up.
"This is a hard regulation to achieve,"
he advised. "The program has a cap of
$200 a ton. We are forecasting prices
will rise quickly to that cap in the 202021 time frame. This can move very quickly
in certain circumstances. We estimate at
least $120 a ton in the out years."
Electricity prices also project to ascend,
indicated Heckler with Brightfield, which
specializes in powering oil field equipment
with solar energy. "Electricity prices are
not going down," he predicted.
Therefore, he indicated, producers interested in obtaining LCFS credits for
installing solar equipment at their facilities
also should consider how federal tax incentives could lighten their power costs
as well. "Now is a good window of opportunity," Heckler advised. "The tax
credit for solar expires at the end of
2016, so facilities have to go in the
ground in the next year to get it. Including
the LCFS credits drives the price well
below utility-scale prices, and even beats
self-generation prices."
O'Donnell touted GlassPoint as the
world's only solar company that focused
exclusively on thermal enhanced oil recovery. "We build systems that make
high-pressure steam directly from sunshine," he described. "We have a mature
technology for large-scale deployment at
a moment in which the regulatory envi-

156 THE AMERICAN OIL & GAS REPORTER

ronment has changed to create a tremendous business opportunity."
O'Donnell said his company's experience showed that solar energy could
economically replace 50 percent of gasfired steam in a California EOR project.
At the same time, he noted, credits for
crude produced at a lower carbon intensity
allow refiners to use more oil. "This represents a critical opportunity for refiners
to avoid demand destruction of petroleum
fuels while meeting the regulatory requirements," he held.
Zierman indicated CIPA's involvement
with the LCFS extended beyond the policy
parameters of tracking the regulation's
process and filing comments, and had
expanded into seeking ways to help members benefit from the standard. "The focus
has been on developing a menu of options,"
he reported. "Part of that is going to be
whether you own the equipment or sign a
power purchase agreement. That depends
on your desire for capital outlay to take
advantage of the tax credits."
He reported CIPA had been in talks
with financiers about the possibility of
expanding small and mid-sized producers'
options. Doing so, he said, will prevent
companies from redirecting drilling capital
toward renewable energy projects. "The
options will consider what technology to
use, how to finance it, and how to help
you navigate the maze of getting it approved," Zierman detailed. "A lot of
companies do not have full-time staff to
navigate this process, so we are having
conversations about ways to help." ❒

Participating in a panel discussion about the opportunities for California producers
under the next phase of the state's Low Carbon Fuel Standard are, from left, moderator
John Costantino of Manatt, Phelps & Phillips; Philip Sheehy with ICF International;
Andrew Heckler, chief of Brightfield Energy; and John O'Donnell, vice president of
business development at GlassPoint Solar.
American Oil and Gas Reporter - July 2015

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