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 
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          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).)

                                                                      



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           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 
                                                                      



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          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 
                                                                      



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          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  
                                                                      



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            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 
                                                                      



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            (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 
                                                                      



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            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)

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