When people who work within or invest in oil and gas within the energy sector hear about a ban on hydraulic fracturing and steam injection, they are probably thinking about promises of banning fracking at the national level heading into a democratic presidential candidate debate. It turns out that they might have needed to think about the high-regulation state of California instead.
California Governor Gavin Newsom has been very aggressive when it comes to new standards, but the state governor sent shares of some energy companies sharply lower by announcing that the state of California is halting new hydraulic fracturing projects until an independent panel of scientists can review those projects.
While this sounds like it is just targeting the newer and future fracking projects, the effort also includes a moratorium on new permits for steam-injected oil drilling. The move now halts hundreds of fracking permit approvals until independent scientists can review those permits, and the move also puts a temporary ban on new wells using steam injection that some regulators believe was linked to one of California’s largest oil spills.
California also will explore certain buffer zones for new wells located close to people or environmentally sensitive areas. This pertains to residential neighborhoods, schools, hospitals and “other facilities that could be exposed” to hazardous fumes.
Shares in California Resources Corp. (NYSE: CRC) had tried to recover, with a 5% gain to $6.51 on Wednesday, but that was after its shares fell almost 27% to $6.20 on Tuesday after having been at $8.48 on Monday. Los Angeles-based California Resources already has had a rough year, as its 52-week trading range is $4.68 to $30.18.
Berry Petroleum Corp. (NYSE: BRY) is actually headquartered in Dallas, Texas, but its three focal regions are the San Joaquin and Ventura basins in California, the Uinta Basin in Utah and the Piceance Basin in Colorado. Shares of Berry Petroleum were at $11.33 as of Monday’s closing bell, but they fell 21.5% to $8.90 on Tuesday and were down yet again, an additional drop of 19% to $7.13, on Wednesday morning. Berry Petroleum’s 52-week range is now $6.95 to $13.99.
Berry Petroleum also took multiple downgrades or target cuts after the news of the fracking ban nailed its stock. BMO Capital Markets downgraded it to Market Perform from Outperform and cut its target to $10 from $13. Wells Fargo downgraded it to Market Perform from Outperform and cut its target to $9, and KeyBanc Capital Markets downgraded it to Underweight from Sector Weight with a $6.50 price target.
While this move may seem extreme or surprising to some, there might be another thought here for a state that is so deep into regulations and environmental issues at all costs: how likely did it seem in the first place for “fracking” and “California” to have even been in the same sentence?