BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Noreen Evans, Chair 2011-2012 Regular Session AB 1966 (Ma) As Amended June 21, 2012 Hearing Date: July 3, 2012 Fiscal: No Urgency: No ME/TW SUBJECT Natural Resources: Oil and Gas: Drilling DESCRIPTION This bill would require a mineral rights owner to provide specified notices to the owner of real property if the mineral rights owner intends to enter the real property to undertake surface-disrupting or non-surface-disrupting activities. BACKGROUND Throughout California, oil, gas, geothermal resources, and other minerals are extracted from the ground. In many cases, ownership of mineral rights in these natural resources and ownership of the real property from which the minerals are extracted have been either partially or wholly severed. The owner of the mineral rights (subsurface owner) generally seeks to extract the valuable resources from the earth, and the real property owner (surface owner) generally desires to utilize land and the resources necessary for his or her enjoyment of the land. In instances where the surface ownership and subsurface ownership is different, existing law provides that the subsurface owner may enter the surface owner's property at any point after providing an initial notice upon entry at the first instance to prospect for or extract any mineral. SB 550 (Florez, 2010) would have required an oil or gas mineral rights owner to provide to the surface owner a ten-day written notice of intent to enter the surface owner's property for the purpose of the extraction of underlying oil or gas. SB 550 was vetoed by Governor Schwarzenegger due to concerns that the (more) AB 1966 (Ma) Page 2 of ? Department of Conservation would have to resolve mineral rights or surface rights disputes, which it would not otherwise be required to do. Unlike SB 550, this bill does not provide its notice requirements under the Public Resources Code, which implicated the Governor's concerns regarding Department of Conservation enforcement, but instead amends the Civil Code. This bill, sponsored by Pacific Ag Management, would require subsurface owners to provide specified notices to surface owners prior to entering the surface owner's property for the purpose of undertaking surface-disrupting or non-surface-disrupting activities. CHANGES TO EXISTING LAW Existing law requires the owner of mineral rights in real property to give written notice to the owner of the real property listed on the current local assessment roll or lessee prior to the first entry upon the real property to prospect for, mine, or extract any mineral. (Civ. Code Sec. 848.) Existing law requires the owner of mineral rights to give the written notice by certified mail or have the notice personally delivered to the real property owner, the owner's representative, or lessee, and that the real property owner, representative or lessee acknowledge in writing the receipt of the notice. (Civ. Code Sec. 848.) Existing law provides that if the mineral rights owner has not complied with the notice requirement, the owner of the real property may request a court to enjoin the prospecting, mining, or extraction operation until the mineral rights owner has complied with the notice requirement. (Civ. Code Sec. 848.) Existing law defines mineral rights as an interest in minerals, regardless of character, whether fugacious or nonfugacious, organic or inorganic, that is created by grant or reservation, regardless of form, whether a fee or lesser interest, mineral, royalty, or leasehold, absolute or fractional, corporeal or incorporeal, and includes express or implied appurtenant surface rights. Minerals include oil, gas, in-place minerals such as ores, metals, and coal, and geothermal resources. (Civ. Code Sec. 883.110; In re Waltz, 197 Cal. 263 (1925); Geothermal Kinetics, Inc. v. Union Oil Co. of California, 75 Cal.App.3d 56 (1977).) AB 1966 (Ma) Page 3 of ? Existing law defines "acknowledged personal delivery" as written notice that is personally delivered to the owner, the owner's representative, or lessee, and the owner, the owner's representative or lessee acknowledges, in writing, receipt of the notice. (Civ. Code Sec. 848.) This bill would repeal the existing requirement to provide written notice upon first entry upon the real property to prospect for, mine, or extract any mineral, and instead require the owner of mineral rights to provide written notice under the following circumstances: (1) if the mineral rights owner or its agent intends to enter real property for the purpose of undertaking non-surface-disrupting activities such as surveying, water and mineral testing, and removal of debris and equipment not involving use of an articulated vehicle on the real property, the owner or agent shall provide a minimum of five days' notice. Reasonable attempts shall be made to deliver the notice by acknowledged personal delivery, but if that cannot occur, the notice shall be delivered by registered letter and be received a minimum of five days prior to the entrance on the property. The notice shall specify the date of entry, estimated length of time the property will be occupied, and the general nature of the work; and (2) if the mineral rights owner or its agent intends to enter real property for the purpose of excavation or other surface-disrupting activities such as drilling new wells, constructing structures, bringing articulated vehicles or excavation equipment on the real property, or reclamation of the real property after the surface has been disturbed, the owner or agent shall provide a minimum of 60-days' notice. The notice shall specify the extent and location of the prospecting, mining, or extraction operation, and the approximate time or times of entry and exit upon the real property. This bill would provide that, if a mineral owner has been authorized by the Division of Oil, Gas, and Geothermal Resources to drill a relief well or to take other immediate actions in response to an emergency incident, the notice provisions in this bill shall be waived. Under this bill, an "emergency" means a sudden, unexpected occurrence, involving a clear and imminent danger, demanding immediate action to prevent or mitigate loss of, or damage to, life, health, property, or essential public services. "Emergency" includes occurrences such as fire, flood, earthquake, or other soil or geologic movements, as well as AB 1966 (Ma) Page 4 of ? occurrences such as riot, accident, or sabotage. COMMENT 1. Stated need for the bill According to the author: Farmers who are the surface owners have experienced losses as a result of lack of notification from sub-surface owners. With notice from the oil company and a plan of operations, this may open a dialogue such that the surface owner could negotiate more accommodation on their property to limit and/or reduce the damage to the entire operation- like relocating a well in order to not disrupt the irrigation system and render the remainder of the property un-useable. In addition notification would ensure the surface owner/farmer is aware when there is to be ingress and egress so the safety of workers, both mineral and farmer can be accommodated. 2. Enhanced notice requirements Under existing law, the owner of mineral rights in real property (subsurface owner) is required to give written notice to the owner of the real property (surface owner) listed on the current local assessment roll or lessee prior to the first entry upon the real property to prospect for, mine, or extract any mineral. (Civ. Code Sec. 848.) This bill would instead require the subsurface owner or its agent, who intends to enter real property for the purpose of undertaking non-surface-disrupting activities to provide a minimum of five days' notice of this intent to the surface owner. This bill would also require the subsurface owner, who intends to enter real property for the purpose of excavation or other surface-disrupting activities to provide a minimum of 60-days' notice of this intent to the surface owner. The author asserts that farmers, who are surface owners, have reported losses to their crops and/or livestock because they are not being provided adequate notice from subsurface owners regarding entry and engagement in surface disrupting and non-surface-disrupting activities. They have also raised concerns regarding the safety of their workers when there is no notification. The author argues these farmers are in an unequal bargaining position and can do very little to ensure that the AB 1966 (Ma) Page 5 of ? subsurface owners engage in their activities in a manner that least disrupts the surface. The California Farm Bureau (CFB), in support, argues that this bill "will bring clarity to the relationship between surface landowners and the owners of mineral rights" and "enhance communication" and "reduce conflicts" between them. CFB asserts that this bill will remedy the problem their members face when well operators enter their property without prior notice to the landowner and begin operation. CFB argues that this bill will serve as a discussion tool for minimizing disagreements between landowners and mineral rights owners. The Western Agricultural Processors Association and California Cotton Ginners and Growers Associations, also in support, assert that the bill "properly and fairly addresses the necessary goals to accomplish a more equal, productive and consistent relationship regarding surface rights for both the surface and mineral rights owners." At least three states have more stringent notice requirements than California. North Dakota requires at least seven-days' written notice be given to the surface owner prior to entry by the subsurface owner to conduct activities that do not disturb the surface and 20-days' notice before oil and gas drilling operations. New Mexico requires at least five business days' written notice prior to entry to conduct activities that do not disturb the surface and no less than 30-days' notice for planned oil and gas operations. Wyoming requires at least five-days' notice prior to entry for non-surface-disturbing oil and gas activities and no less than thirty but no more than 180-days' notice before the commencement of oil and gas operations. It is important to note that all three of these states limit notice requirements to oil and gas subsurface owners. However, this bill would apply not only to oil and gas mineral rights owners but would apply to all mineral rights owners. 3. Opposition's concerns Several stakeholder groups are in opposition to this bill because of the length of the notice requirement for surface-disrupting activities. Additionally, concern has been raised regarding whether this requirement should be placed on geothermal mineral rights owners. a. 60-day notice requirement AB 1966 (Ma) Page 6 of ? California Independent Petroleum Association (CIPA), Independent Oil Producers Agency (IOPA) and the Western States Petroleum Association (WSPA) oppose this bill's 60-day notice requirement to be provided before entering with the intent to extract minerals. They contend that a "sixty day notification can cause idle time for a rig and crew that could otherwise be put to work." Further, this extended notification period will disproportionately hurt small oil and gas producers as drilling rigs are in high demand and large operators dominate the scheduling often for months. These operators argue that the state risks hampering the production of "energy needed to fuel our economy, create jobs, and provide an adequate tax base." They further argue that a notification period twice as long as any other state "would be onerous, cause a less efficient use of resources, and in some instances do harm to the surface rights owner." Moreover, they contend that it is in the best interest of the driller, operator, surface rights owner and the state for the scheduling of drilling rigs to be as flexible as possible. They propose amending the bill to instead provide a 20-day notification period before entering a project for surface disruptive activities. In response, the author argues that the 60-day period is necessary to ensure that surface owners have sufficient bargaining power to ensure that the subsurface owners conduct themselves in ways that are less disruptive. Staff notes that an alternate way to provide flexibility in the notice period while preserving the bargaining power of the property owner would be to allow the surface owner and the subsurface owner to mutually agree on a different notice period. Accordingly, the author should continue to work with interested parties to address these notice period concerns. b. Geothermal rights concerns As discussed above, North Dakota, New Mexico, and Wyoming have notice requirements for subsurface owners, but these notice requirements only apply to oil and gas operations. This bill would not only apply to oil and gas operations. Instead, this bill applies to all minerals being extracted. California defines mineral resources to include oil, gas, in-place minerals such as ores, metals, and coal, and geothermal resources. (Civ. Code Sec. 883.110; In re Waltz, 197 Cal. 263 AB 1966 (Ma) Page 7 of ? (1925); Geothermal Kinetics, Inc. v. Union Oil Co. of California, 75 Cal.App.3d 56 (1977).) Calpine Corporation, in opposition, requests an amendment to exempt geothermal mineral rights and associated geothermal facilities from the notification requirements. Calpine argues that while the focus and debate on the bill has been on the oil and gas industry, they believe the bill as currently drafted applies to geothermal operations "since geothermal resources are defined as a mineral resource under both state and federal law." They argue that the complexities of their operations at The Geysers make the notice requirements unworkable because the "ownership of the mineral rights and real property" are very complex. Calpine states that they hold approximately 110 geothermal mineral rights leases with 300 real property owners at the Geysers. Further, Calpine states that: Calpine supplies up to 725 megawatts or approximately 22 Ýpercent] of California's consumed renewable power from our 15 geothermal power plants at The Geysers in Lake and Sonoma counties. Calpine's geothermal operations are massive and complex. We have operations personnel onsite 24 hours a day, seven days a week, 365 days a year. Calpine's Geysers are located on 29,000 acres (45 square miles) of land and contain 333 steam wells, 45 injection wells, 80 miles of steam pipelines, 69 miles of injection water lines, 70 miles of 21kV power lines and 167 miles of roads. As you can imagine, this complicated operation requires an extensive and ongoing operating and maintenance program, including such ordinary activities as cleaning out trenches, re-grading roads, to well sampling. Accordingly, the author should continue to work with Calpine and other interested parties to see if their concerns about the notice can be addressed. 4. Governor Schwarzenegger's veto of SB 550 This bill would provide a notice requirement similar to that contained in SB 550 (Florez, 2010). In vetoing SB 550, Governor Schwarzenegger stated: The Department of Conservation (Department) does not currently resolve mineral rights or surface rights disputes. But this bill would create an expectation on the part of the landowner AB 1966 (Ma) Page 8 of ? that the Department will now regulate in this arena. This means that violations of the provisions of the bill could be subject to the imposition of penalties by the Department. In essence, this bill creates a regulatory program in search of a problem. These disputes should be resolved in the courts, not through the Department's enforcement processes. Support : California Farm Bureau Federation; Western Agricultural Processors Association; California Cotton Ginners and Growers Associations Opposition : California Independent Petroleum Association; Calpine Corporation; Independent Oil Producers Agency; Western States Petroleum Association HISTORY Source : Pacific Ag Management Related Pending Legislation : None Known Prior Legislation : SB 550 (Florez, 2010) See Background and Comment 4. Prior Vote : Assembly Floor (Ayes 63, Noes 0) Assembly Committee on Natural Resources (Ayes 8, Noes 0) **************