BILL ANALYSIS                                                                                                                                                                                                    Ó





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          |                                                                 |
          |         SENATE COMMITTEE ON NATURAL RESOURCES AND WATER         |
          |                   Senator Fran Pavley, Chair                    |
          |                    2011-2012 Regular Session                    |
          |                                                                 |
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          BILL NO: AB 591                    HEARING DATE: June 14, 2011  
          AUTHOR: Wieckowski                 URGENCY: No  
          VERSION:   May 27, 2011            CONSULTANT: Katharine Moore  
          DUAL REFERRAL: Environmental QualityFISCAL:   Yes
          SUBJECT: Oil and gas production: hydraulic fracturing.  
          
          BACKGROUND AND EXISTING LAW
          The Division of Oil, Gas, and Geothermal Resources (DOGGR) 
          exists within California's Department of Conservation.  DOGGR's 
          Supervisor (supervisor) has extensive and broad authority to 
          regulate activities associated with the production and removal 
          of hydrocarbons (e.g. oil and gas) from the ground, including 
          the subsurface injection of water and other fluids, and the 
          application of pressure or other means to enlarge existing or 
          create new channels to promote the underground movement of 
          hydrocarbons into production wells (Public Resources Code (PRC) 
          § 3106).  This authority is granted in order to prevent damage 
          to life, health, property, natural resources, and underground 
          and surface water suitable for irrigation or domestic purposes.  
          The owner or operator of any oil and gas well must keep, or 
          cause to be kept, a careful and accurate log, core record, and 
          history of the drilling of the well which must periodically be 
          reported to DOGGR (PRC § 3210 et seq.) where it subsequently 
          becomes a matter of public record.

          "Hydraulic fracturing" or "fracking" of hydrocarbon wells to 
          enhance oil and gas recovery is an increasingly popular 
          subsurface process/technique.  One county in Pennsylvania 
          reported roughly twenty-seven times more applications for 
          fracking in 2009 compared to just two years earlier.  Due to 
          technological innovations, fracking by itself and in combination 
          with advanced drilling techniques have allowed companies to 
          develop previously uneconomic oil and gas reserves, such as 
          those located in subsurface shale formations throughout the 
          United States.  Once an oil or natural gas well is drilled and 
          properly lined, fluids are pumped down to an isolated portion of 
          the well at pressures high enough to cause or enlarge cracks in 
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          the subsurface shale formation.  These cracks or fractures allow 
          oil and natural gas to flow more freely into the well and then 
          to the surface.  The pumped fracking fluid is usually - but not 
          always - comprised almost entirely of water with a small 
          fraction of additional substances (less than a few percent by 
          volume) added to enhance the process.  The US Environmental 
          Protection Agency (EPA) has reported that two to five million 
          gallons of fracking fluid may be necessary to sufficiently frack 
          one well in a shale formation - a considerable amount of water.  
          The fluid volume needed, its chemical composition and physical 
          characteristics will vary depending upon the particular 
          conditions of each well.  In some instances, additional 
          materials, such as sand, are also pumped into the well to keep 
          the cracks open.

          Fracking has been a boon to domestic oil and gas production.  
          Its popularity, however, has led to increasing public 
          controversy.  Fracking has been associated with groundwater and 
          surface water contamination, as well as other adverse 
          environmental impacts.  Several states - including Wyoming and 
          Texas, among others - are starting to investigate and monitor 
          fracking more diligently.  New legislation has been proposed and 
          restrictions on the practice considered.  At the federal level, 
          the US EPA has undertaken a new comprehensive review of 
          hydraulic fracturing with results expected to be reported in 
          2014.

          According to the oil and gas industry, hydraulic fracturing has 
          been used in California for several decades.  Wells have been 
          fracked in Kern, Ventura, Santa Barbara and Los Angeles 
          counties, at a minimum.  Industry reports suggest that hydraulic 
          fracturing will most likely increase statewide:  the Monterey 
          shale formation, which stretches from Northern to Southern 
          California, is considered the largest onshore shale opportunity 
          in the United States, and is receiving increasing attention. 
          Several oil companies have purchased leases covering several 
          hundreds of thousands of acres to drill the Monterey shale.  If 
          these investments produce positive returns, the state could see 
          a proliferation of hydraulic fracturing operations by various 
          oil companies in the near future. However, at least one drilling 
          location in Monterey County has already generated significant 
          community concern and opposition to fracking.  

          On January 13, 2011, Senator Pavley wrote the supervisor to 
          inquire about hydraulic fracturing activity in California.  On 
          February 16, 2011, the supervisor replied and acknowledged that 
          DOGGR had no reliable information on the extent of hydraulic 
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          fracturing activities and has imposed no reporting or permitting 
          requirements on the practice despite the clear regulatory 
          authority to do so.  Regardless of several industry and 
          engineering reports to the contrary, DOGGR claimed that 
          hydraulic fracturing does not occur on a large scale in 
          California. DOGGR does not have data on the safety, efficacy, 
          and necessity of hydraulic fracturing as currently employed in 
          California.  

          PROPOSED LAW
          This bill would:
                 Make a series of legislative findings regarding 
               hydraulic fracturing as used in the development of oil and 
               gas resources in California including:
                  o         defining the technique,
                  o         recognizing the long history of its 
                    application within the state and DOGGR's existing 
                    authority to regulate the practice, and
                  o         given the state's geologic and seismic 
                    complexity, the critical lack of available data 
                    necessary to evaluate its impact on the state's 
                    natural resources.
                 Require that those engaged in the hydraulic fracturing 
               of a well provide to the well's owner or operator a 
               complete list of the chemical constituents used in the 
               hydraulic fracturing fluid and all of the associated 
               standardized Chemical Abstract Service (CAS) identification 
               numbers.
                 Require that the history of the drilling at the well 
               provided to DOGGR be modified to include:
                  o         the source and amount of water used in the 
                    exploration or production of the well, 
                  o         data on the use, recovery and disposal of any 
                    radiological components or tracers injected into the 
                    well, and
                  o         if hydraulic fracturing is used, disclosure of 
                    the chemical information data described above.
                 Clarify the reporting requirements of the owner or 
               operator of the well to DOGGR of the history of work 
               performed at the well including copies of all appropriate 
               logs, tests or surveys performed and the hydraulic 
               fracturing data described above.
                 Require DOGGR to make the hydraulic fracturing data 
               collected publicly available on its own web-site on a 
               well-by-well basis.


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          ARGUMENTS IN SUPPORT
          According to the author, "DOGGR does not have specific 
          information about what hydraulic fracturing techniques are being 
          used in the various production areas throughout the state.  The 
          extraction of unconventional hydrocarbon resources whether from 
          fracking or other methods of enhanced oil recovery can be 
          extremely water intensive.  Because some exploration and 
          production techniques and processing could potentially 
          compromise water resources, it is important that regulators have 
          a clear understanding of what is happening in the field.  Given 
          DOGGR's statutory responsibility to balance resource protection 
          with hydrocarbon extraction, the use of water should be 
          considered when looking at permits.  Fracking uses a variety of 
          chemicals, including known toxins. These chemicals include 
          diesel fuel and ethylbenzene (both known carcinogens) and 
          ethylene glycol (a chemical associated with birth defects, 
          female and male infertility, and other disorders)."

          "Exploration and production from oil shale formations is 
          expected to increase in California.  Some investors are looking 
          to oil shale in California as one of the largest potential 
          sources of unconventional oil in the U.S.  The collection of 
          information required by this bill will allow DOGGR to better 
          assess potential risks."

          According to the Natural Resources Defense Council, "AB 591 is a 
          very reasonable approach that ensures that the state agency 
          responsible for overseeing oil and gas drilling is regulating 
          fracking and making information about it available to the 
          public."

          ARGUMENTS IN OPPOSITION
          AB 591 has been substantially amended since the letters in 
          opposition to the bill were submitted in the Assembly.  These 
          amendments at least partially mitigated concerns raised by the 
          opponents, and make it difficult for committee staff to 
          specifically address objections to the current version of the 
          bill.  In general, however, opponents maintain that hydraulic 
          fracturing techniques are safe, and not associated with any 
          contamination.  While the California Independent Petroleum 
          Association notes that "the concept of full disclosure of 
          hydraulic fluids in the original version of AB 591 was one that 
          Ęthey] did not object to", the others maintain that this is 
          redundant given the information already provided on Material 
          Safety Data Sheets. 

          COMMENTS 
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           Is additional authority required to regulate hydraulic 
          fracturing in California  ?  DOGGR apparently failed to regulate 
          or systematically collect data on hydraulic fracturing in 
          California, despite clearly having the broad authority to do so 
          and regardless of the evidence that fracking has been used in 
          California for decades.  AB 591 provides explicit legislative 
          direction to DOGGR to begin, at a minimum, monitoring fracking. 
          State regulation is necessary as the permanent underground 
          injection of chemicals used in hydraulic fracturing is not 
          regulated at the federal level by the US EPA.  Congress exempted 
          the use of most fracking fluids - with the exception of diesel - 
          from the Safe Drinking Water Act, although most other subsurface 
          injections are regulated to protect the drinking water supply.  

           Defining hydraulic fracturing  :  As currently written, this bill 
          includes a legislative finding that provides a definition of 
          hydraulic fracturing.  Existing statutory language encompasses 
          this definition, and, as noted elsewhere, already provides DOGGR 
          with the authority to regulate hydraulic fracturing.  While the 
          "mix of chemicals" referred to in the findings is sufficiently 
          general to include the variety of materials known to be injected 
          into a well during the hydraulic fracturing process, it neglects 
          that different materials serve varying functions.  For example, 
          a liquid compound may be injected to prevent bacterial growth 
          while a solid material is used to help keep the fracture open.  
          For clarity, the committee may wish to provide a definition of 
          hydraulic fracturing in statute (Amendment 1)

           Report back to the Legislature  :  While AB 591 calls for rapid 
          on-line reporting of hydraulic fracturing data on DOGGR's 
          web-site, the committee may wish to require DOGGR to compile the 
          collected data into a comprehensive report to facilitate 
          legislative oversight (Amendment 2).

           Exploratory wells and potentially confidential information:   The 
          overarching goals of AB 591 are the collection and (reasonably) 
          rapid public dissemination of hydraulic fracturing data.  This 
          is, in part, to help allay concerns regarding the perceived 
          potential impacts of hydraulic fracturing on public health and 
          the environment in the vicinity of fracked wells.  The lack of 
          fracking information available to the public likely exacerbated 
          these concerns.  At the same time, however, well owners and 
          operators have a legitimate need, long recognized by the state 
          (PRC § 3234), to prevent certain information, such as well log 
          data, gathered from exploratory wells from becoming immediately 
          public.  It is important to note that this exclusion applies to 
          exploratory wells only, not to those in production.  For onshore 
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          exploratory wells, up to two years of confidentiality may be 
          readily granted, upon request.  The supervisor has discretion to 
          grant up to an additional two years (for a total of four years) 
          confidentiality in extenuating circumstances without public 
          review.  As AB 591 is currently written, the hydraulic 
          fracturing data for exploratory wells are arguably subject to 
          these confidentiality provisions.  This is in apparent conflict 
          with the intent of AB 591.  The committee may wish to direct 
          committee staff to continue working with the author's office to 
          explore this issue, should this bill pass the committee 
          (discussed further below).

           This bill is a work in progress  :  The author's office is 
          actively engaged in discussions with various stakeholders, 
          including the opponents, on the bill's specific content.  While 
          the motivation underlying the bill is clear, the appropriate 
          language is evolving (for example, Amendment 3 deletes a 
          reference that has changed).  The committee may wish to ask for 
          the author's commitment to include committee staff in the 
          on-going discussions and direct committee staff to continue 
          working with the author's office, should this bill pass this 
          committee, on aspects of the bill relevant to this committee's 
          jurisdiction.  Should significant changes be subsequently 
          proposed, the committee may also wish to bring this bill back to 
          committee for review.

           Recent Budget history  :  DOGGR has been relatively underfunded in 
          recent years, given its extensive obligations and 
          responsibilities.  To help rectify this and improve DOGGR's 
          regulatory program activities, the Legislature approved 17 new 
          positions in the 2010 - 2011 budget year.  According to the 
          Legislative Analyst's Office, these positions have only recently 
          been filled and it is not yet possible to evaluate how these 
          additional staff will impact DOGGR's performance.  Nevertheless 
          in the 2011 - 2012 budget year, the Department of Conservation 
          requested an additional 36 positions to improve DOGGR's 
          environmental compliance, underground injection control and 
          construction site review.  Eighteen positions and an additional 
          $2.3 million were approved in the relevant Budget sub-committees 
          of both houses. Additional budget control language was approved 
          in the Assembly sub-committee's agenda to express the intent of 
          the Legislature that some of the funds appropriated be used to 
          collect and disseminate information to the public regarding 
          hydraulic fracturing activities in California.

           Is fracking safe  ?  It is impossible to answer that question for 
          California today given the lack of available information.  
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          Nationwide, however, there is considerable evidence that 
          suggests the increasing concern about the potential public 
          health and environmental impacts of the practice is warranted.  
          For example, in Pennsylvania there was a report that tens of 
          thousands of gallons of toxic fracking fluid leaked onto 
          residential property, resulting in dead trees and contaminated 
          water.  Also in Pennsylvania, other evidence shows that waste 
          fracking fluids were substantially contaminated with radioactive 
          materials that accumulated in the fluids as they moved through 
          the subsurface formations.  The US EPA has reported that two 
          water wells in Texas were contaminated by gas released by 
          hydraulic fracturing.  Just a few weeks ago, a peer-reviewed 
          study in the prestigious Proceedings of the National Academies 
          of Science (SG Osborn et al., doi:10.1073/pnas.1100682108) used 
          multiple sophisticated chemical analytical techniques to show 
          that methane contamination of some Pennsylvanian drinking water 
          is strongly associated with the fracking of wells in a shale gas 
          formation, although no evidence of fracking fluid contamination 
          was found.  For each fracked well, the range of potential 
          impacts will depend critically on the specific conditions 
          present. Plausible mechanisms exist for significant subsurface 
          fluid and/or gas migration, including breaches of the integrity 
          of the well-casing or reservoir.

          Furthermore, according to a recent congressional report, from 
          2005 - 2009 oil and gas companies throughout the US used 
          fracking products containing 29 chemicals that are (1) known or 
          possible human carcinogens, (2) regulated under the Safe 
          Drinking Water Act for their risk to human health, or (3) listed 
          as hazardous air pollutants under the Clean Air Act.  In some 
          cases, companies injected fluids containing chemicals that they 
          themselves could not identify-they did not have access to 
          proprietary information about products purchased "off the shelf" 
          from chemical suppliers.  In some instances, radioactive tracers 
          may be injected into wells in order to observe the extent and 
          success of the hydraulic fracturing. 

          SUGGESTED AMENDMENTS 

               AMENDMENT 1  
               Page 6, before line 25, add:
               "SEC. 1. Section 3011 of the Public Resources Code is added 
               to read:
               3011.  "Hydraulic fracturing" means a technique used in 
               preparing a well that typically involves the pressurized 
               injection of water and a mix of chemicals, compounds and 
               materials into an underground geologic formation in order 
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               to fracture the formation, thereby causing or enhancing, 
               for the purposes of this division, the production of oil or 
               gas from a well."

               AMENDMENT 2 
                Page 7, after line 37, add:
                "(c) The supervisor will prepare and transmit a 
                comprehensive report to the Legislature on hydraulic 
                fracturing in the exploration and production of oil and 
                gas resources in California using the data provided 
                pursuant to subdivision (b) of section 3213 and including 
                relevant additional information as necessary including, 
                but not limited to the disposition of water used in the 
                process.  The first report is due on January 1, 2013 and 
                annually thereafter."

               AMENDMENT 3 
                Page 7, line 32, delete "paragraph (1) of"
               

          SUPPORT
          Environmental Working Group (sponsor)
          Earthworks (co-sponsor)
          Board of Supervisors of the County of Los Angeles
          California Coastal Protection Network (previous version)
          California League of Conservation Voters
          California Water Association (previous version)
          Clean Water Action (previous version)
          Environment California (previous version)
          Food and Water Watch
          Natural Resources Defense Council
          Supervisor Jane Parker, Monterey County Board of Supervisors 
          (previous version) 
          Planning and Conservation League (previous version)
          Rural Coalition of Southern Monterey County (previous version)
          Sierra Club California (previous version)
          Ventana Conservation and Land Trust
          Water Replenishment District of Southern California

          OPPOSITION
          American Chemistry Council (previous version)
          California Independent Petroleum Association (previous version)
          Western States Petroleum Association (previous version)




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