Pacific Legal Foundation Files Federal Lawsuit Over Oil Setback Law Banning Owners from Accessing Resources in their Mineral Estate

NARO-California, of the National Association of Royalty Owners, together with Pacific Legal Foundation announced Wednesday they filed a federal lawsuit challenging Senate Bill 1137, the 3,200-foot oil setback mandate that they argue violates the constitutional rights of oil and gas mineral and royalty owners.

According to NARO-CA and Pacific Legal Foundation, SB 1137 amounts to an uncompensated taking of private property in violation of the Fifth Amendment to the US Constitution.

Senate Bill 1137, which took effect on June 27, 2024, bans the construction of new oil wells and the maintenance or repair of existing wells within 3,200 feet of loosely defined “sensitive receptors,” potentially threatening to shut down energy resource infrastructure statewide, Hector Barajas reported for the Globe in April. SB 1137 was pushed through the California State Legislature in the final days of session in 2022 with little public debate or review.

The bill was also pushed through without any scientific basis to support it. None of the so-called studies the State Legislature pointed to as supporting the bill show that being within 3,200 feet of a well is harmful to a person’s health. The State Legislature slap-dash job here, one of the studies it tried to rely on was written after SB 1137 was adopted.

The Globe reported in 2022 on Senate Bill 1137, gut-and-amend legislation by Democrat Senators Lena Gonzalez and Monique Limón, to require 3,200-foot mandatory setbacks around California oil and gas wells:

Really disconcerting is “the bill would authorize the State Air Resources Board, and the State Water Resources Control Board to prescribe, adopt, and enforce any emergency regulations as necessary to implement, administer, and enforce these duties.”

Why now when oil production has responsibly occurred in Los Angeles County and around the state for more than 100 years?

In the City of Los Angeles:

there are 26 oil and gas fields that intersect city boundaries, and 5,229 oil and gas wells, according to the CA DOGGR and verified by the City’s Petroleum Administrator.
There are approximately 819 active, 296 idle, 3,181 plugged, and 933 buried wells.
There are oil and gas facilities in nearly every section of the 503 square miles of the City.
The City of Los Angeles produces 2% of California’s total production.

In 1988, the state of California only imported about 4.5% of all the oil that we consumed in our state. By 2020 California was importing over 70% of our oil from foreign sources.

The lawsuit, John Morgan and Melinda Morgan v. Doug Ito (State Oil and Gas Supervisor), filed in U.S. District Court for the Central District of California, was discussed at a press conference the Globe attended with Pacific Legal Foundation, Assemblyman Stan Ellis, Central Valley BizFed President & CEO Clint Olivier, founder of California Farm Workers & Families, and Central Valley Taxpayers Association board member Jesse Rojas.

NARO-CA members and Santa Barbara County mineral owners, John and Melinda Morgan, a brother and sister whose mineral assets were effectively wiped out by SB 1137, are the lead plaintiffs.

SB 1137 and Defendant State officials’ actions to enforce it have destroyed any economic use of the Morgans’ severed mineral estate, the lawsuit says.

The lawsuit explains:

…longstanding California law holds that private landowners may own the mineral estate separate and apart from the surface estate of real property. Many Californians own title to mineral estates, which are commonly leased to oil and gas operators in exchange for portions of royalty payments. These mineral estates are discrete property interests and are often passed down from generation to generation, providing valuable legacies and additional sources of income.

Here, the minerals that the Morgans own have been severed from the surface estate, which a third party owns, and the Morgans’ minerals exist as a separate estate. Thus, SB 1137 eliminates any economically beneficial use of the Morgans’ separate mineral estate.

Thus, by prohibiting the drilling of oil and gas wells within 3,200 feet of “sensitive receptors,” California unfairly requires mineral estate owners to bear the burden of the State’s policy choices regarding climate change.

As PLF notes, “Governor Newsom made passing the 3,200 feet setback into law a key component of his ‘climate proposals’ to the legislature. When proposing the setback, he called it a ‘monumental step to tackling the climate crisis.’”

Mineral owners, many of which are farmers, ranchers, and families, lease their property to oil and gas drillers who operate the oil drilling.

Pacific Legal Foundation Attorney Jeff Jennings said SB 1137 now prevents mineral owners from getting permits, a violation of the Fifth and Fourteenth Amendments:

The Fifth Amendment to the U.S. Constitution, made applicable to the States by the Fourteenth Amendment, prohibits the government from taking “private property . . . for public use, without just compensation.” U.S. Const. amend. V. The U.S. Supreme Court has held that a regulation that “goes too far” in depriving a property owner of the productive use of their property constitutes a taking under the Fifth Amendment for which the government must pay just compensation. Penn. Coal Co., 260 U.S. at 415.

A regulation “goes too far” when it “prohibits all economically beneficial use” of a property.

Attorney Jennings added that California can pursue whatever climate policies they want, but the Morgans’ property rights cannot be sacrificed without the State paying them just compensation. And “neither the Defendants nor the State has paid just compensation to the Morgans for the total taking of their mineral estates.”

“SB 1137 is not only an attack on the 600,000 oil and gas royalty owners in California, but raises issues affecting all property owners in America,” said Ed Hazard, President of NARO-CA, which is not a party to the lawsuit.. “If the state can take one kind of property without compensation, it can target others.”

Mark Miller, PLF’s Director of Environment and Natural Resources Litigation added: “We’re suing because prosperity doesn’t come from banning resources—it comes from freeing people to use what they own.”

“California’s war on oil and gas is a war on our basic rights,” said Assemblyman Stan Ellis (R-Bakersfield). He added that thousands of mineral rights holders are not compensated now because of SB 1137.

“When oil production shuts down, jobs are lost and revenue is gone,” Central Valley BizFed President & CEO Clint Oliver said. “Even major pipelines will be forced to close. Business leaders believe a more balanced solution is needed, as well as a regulatory framework that strengthens the Central Valley, rather than undermining it.”

Jesse Rojas noted that Central Valley families can’t afford the policies written by people who aren’t affected by those policies, and added that oil and gas jobs are and have always been high wage jobs that lead many to the middle class.

“Without SB 1137’s drilling ban, it is likely that the necessary permits to operate oil wells on the property would be granted and the Morgans would be able to receive the extraction benefits of their mineral estates,” the lawsuit says.

The lawsuit seeks:

“a permanent injunction against Defendants, their officers, their employees, agents, assigns, and all persons acting in concert with them, directing them to stop enforcing SB 1137 insofar as it bans the issuance of permits for the Morgans to drill new oil wells, redrill or deepen existing wells, or to permanently alter the casing of existing wells on the subject parcels. An award of attorneys’ fees and costs in this action pursuant to 42 U.S.C. § 1988; and

An award of any further relief this Court may deem just and proper.

The action comes as California continues to have the nation’s highest gas taxes, resulting in the nation’s highest gas prices.

Climate change and “green” policies imposed by California, including surcharges, taxes and fees, are causing the cost of energy to skyrocket – which is what the green energy proponents want. Banning oil fields would only greatly exacerbate the problem straight into a full crisis as we are seeing in real time in Europe.

The mission of NARO is to encourage and promote exploration and production of minerals, oil and gas in the United States while preserving, protecting, advancing and representing the interests and rights of mineral and royalty owners through education, advocacy and assistance to our members, to NARO chapter organizations, to government bodies and to the public.

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Katy Grimes

Katy Grimes, the Editor in Chief of the California Globe, is a long-time Investigative Journalist covering the California State Capitol, the co-author of California's War Against Donald Trump: Who Wins? Who Loses? and a contributor to "Taxifornia 2016."
A California native and Navy mom, Katy lives in Sacramento, CA.

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