BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



           ------------------------------------------------------------ 
          |SENATE RULES COMMITTEE            |                  AB 1966|
          |Office of Senate Floor Analyses   |                         |
          |1020 N Street, Suite 524          |                         |
          |(916) 651-1520         Fax: (916) |                         |
          |327-4478                          |                         |
           ------------------------------------------------------------ 
           
                                         
                                 THIRD READING


          Bill No:  AB 1966
          Author:   Ma (D)
          Amended:  6/21/12 in Senate
          Vote:     21

           
           SENATE JUDICIARY COMMITTEE  :  3-0, 7/3/12
          AYES:  Evans, Corbett, Leno
          NO VOTE RECORDED:  Harman, Blakeslee
           
          ASSEMBLY FLOOR  :  63-0, 5/31/12 - See last page for vote


           SUBJECT  :    Natural resources:  oil and gas drilling

           SOURCE  :     Pacific Ag Management


           DIGEST  :    This bill requires 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.

           ANALYSIS  :    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.  
          (Civil Code (CIV) Section 848)

          Existing law requires the owner of mineral rights to give 
          the written notice by certified mail or have the notice 
                                                           CONTINUED





                                                               AB 1966
                                                                Page 
          2

          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 Section 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 Section 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 Section 883.110; 
          In re Waltz, 197 Cal. 263 (1925); Geothermal Kinetics, Inc. 
          v. Union Oil Co. of California, 75 Cal.App.3d 56 (1977).)

          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 Section 848)

          This bill repeals 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 

                                                           CONTINUED





                                                               AB 1966
                                                                Page 
          3

             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 provides 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 occurrences 
          such as riot, accident, or sabotage.

           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 

                                                           CONTINUED





                                                               AB 1966
                                                                Page 
          4

          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 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 CIV.

          This bill, sponsored by Pacific Ag Management, requires 
          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.

           Prior legislation  .  SB 550 (Florez, 2010) passed the Senate 
          Floor (37-0) on 8/30/12.  The bill was vetoed by the 
          Governor.  His veto message states, "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 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."

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   

                                                           CONTINUED





                                                               AB 1966
                                                                Page 
          5

          Local:  No

           SUPPORT  :   (Verified  7/6/12)

          Pacific Ag Management (source)
          California Cotton Ginners and Growers Associations
          California Farm Bureau Federation
          Western Agricultural Processors Association

           OPPOSITION  :    (Verified  7/6/12)

          California Independent Petroleum Association
          Calpine Corporation
          Independent Oil Producers Agency
          Western States Petroleum Association

           ARGUMENTS IN SUPPORT  :    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.

           ARGUMENTS IN OPPOSITION  :    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.

          California Independent Petroleum Association, Independent 
          Oil Producers Agency and the Western States Petroleum 
          Association oppose this bill's 60-day notice requirement to 
          be provided before entering with the intent to extract 

                                                           CONTINUED





                                                               AB 1966
                                                                Page 
          6

          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 this 
          bill to instead provide a 20-day notification period before 
          entering a project for surface disruptive activities.   
           

           ASSEMBLY FLOOR  :  63-0, 5/31/12
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Campos, Carter, Cedillo, 
            Chesbro, Davis, Dickinson, Eng, Feuer, Fletcher, Fong, 
            Fuentes, Furutani, Galgiani, Garrick, Gatto, Gorell, 
            Grove, Hagman, Halderman, Hall, Hayashi, Roger Hernández, 
            Hill, Huber, Hueso, Huffman, Knight, Lara, Logue, Bonnie 
            Lowenthal, Ma, Mitchell, Monning, Morrell, Nestande, 
            Nielsen, Pan, V. Manuel Pérez, Portantino, Silva, 
            Skinner, Smyth, Solorio, Swanson, Torres, Wieckowski, 
            Williams, Yamada, John A. Pérez
          NO VOTE RECORDED:  Charles Calderon, Conway, Cook, 
            Donnelly, Beth Gaines, Gordon, Harkey, Jeffries, Jones, 
            Mansoor, Mendoza, Miller, Norby, Olsen, Perea, Valadao, 
            Wagner


          RJG:k  7/6/12   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****

                                                           CONTINUED





                                                               AB 1966
                                                                Page 
          7














































                                                           CONTINUED