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: SB 1054                   HEARING DATE: April 10, 2012  

          AUTHOR: Pavley                     URGENCY: No  
          VERSION: March 29, 2012            CONSULTANT: Katharine Moore  
          DUAL REFERRAL: Environmental QualityFISCAL: Yes  
          SUBJECT: Oil and gas: well operation: notice.  
          
          BACKGROUND AND EXISTING LAW
          California is the 4th largest oil and gas producing state and 
          natural resources extraction is thus an important contributor to 
          the state's economy. 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 (Public Resources Code (PRC) § 3106).  This includes 
          the subsurface injection of water and other fluids.  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.  DOGGR issues 
          permits for drilling new wells or re-working old ones (PRC § 
          3203) and has 10 working days to respond to each application.  
          Once a permit is approved, 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 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.  Due to technological innovations, 
          fracking, by itself and in combination with advanced drilling 
          techniques (e.g. directional drilling) 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 
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          the well at pressures high enough to cause or enlarge cracks in 
          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.  A considerable amount of 
          water - hundreds of thousands to millions of gallons - may be 
          needed to frack an individual well.  The fluid volume needed, 
          its chemical composition and physical characteristics will vary 
          depending upon the particular conditions of each well.  

          For many years fracking maintained a low profile in California.  
          According to industry reports and academic papers, wells have 
          been fracked for several decades.  Estimates vary, but suggest 
          that a majority of wells in the state may be fracked.  Counties 
          where wells have been fracked include Kern, Ventura, Santa 
          Barbara, Los Angeles and Monterey.  Recovery of the hydrocarbon 
          reserves in the Monterey shale formation may be an important 
          "play" in the future.  Fracking treatments are likely to be 
          necessary to achieve the reserves' full potential.  However, 
          fracking has become a highly controversial technique subject to 
          considerable scrutiny.  Significant environmental contamination 
          is attributed to it in cases in Wyoming, Texas, Colorado, West 
          Virginia and Pennsylvania.  New York state, for example, 
          established a fracking moratorium until new regulations are 
          developed, due, in part, to the potential risks to the New York 
          City and other watersheds.  Other states, including Texas, 
          Colorado, Arkansas and Ohio have revised their laws and 
          regulations to provide for additional safety and protective 
          measures.  The US Environmental Protection Agency is moving 
          forward with a national study, due in 2014, although, at the 
          federal level, fracking is largely exempt from the provisions of 
          the Safe Drinking Water Act and the Underground Injection 
          Control (UIC) well program courtesy of the "Halliburton 
          Loophole."

          In California, despite nationwide concern and legislative 
          direction, DOGGR has not exercised its acknowledged authority to 
          either regulate or systematically collect data on hydraulic 
          fracturing treatments under PRC § 3106.  While some argue that 
          DOGGR regulates fracking through regulating well integrity, well 
          casing failures are known to occur (comprehensive data are not 
          available from DOGGR).  Arguably, it is difficult to specify or 
          regulate design criteria for a well casing when all the 
          conditions it is exposed to (e.g. fracking) are not known.  
          Despite the absence of action at the state level, some local 
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          governments, utilizing their jurisdiction over local land use 
          and planning, have taken steps to include fracking within their 
          regulatory authority, and, by doing so, have provided some 
          public notice of this activity.

          In the County of Los Angeles, the Department of Regional 
          Planning approves conditional-use permits.  The neighborhood of 
          Baldwin Hills - with one of the largest oil fields in California 
          - has established a Baldwin Hills Community Standards District 
          whose regulations supplement those at the county level.  An 
          Annual Drilling Plan is required and the District's Community 
          Advisory Panel (CAP) reviews it concurrently with the county's 
          Director of Planning.  The plan includes information on both 
          planned drilling and fracking operations.  The CAP conducts a 
          public review process in order to provide feedback to the 
          director, and neighbors who live within 500 feet of a well are 
          required to be notified.  The County of Santa Barbara has 
          existing local land use requirements which require, for example, 
          permitting for the well pad where the well is located.  A 
          conditional use permit may also be required in addition to an 
          approved Oil Drilling and Production Plan.  In Santa Barbara, 
          there is at least one public hearing conducted after 10 days 
          advance notice.  The neighbors within a 300 foot radius of the 
          property boundary are specifically informed of the hearing.  In 
          December 2011, the County of Santa Barbara passed two ordinances 
          to explicitly include fracking within its existing land use 
          planning process for wells.  

          In other states the permit process for drilling new wells 
          includes public notification to surface property owners meeting 
          certain conditions - either adjacent to or within a certain 
          distance of the wellhead - and many include provisions regarding 
          fracking.  (Subsurface mineral rights are often held separately 
          from surface property rights.)  Colorado, for example, notifies 
          surface property owners within 500 feet of the wellhead for new 
          drilling permit applications with at least 20 days advance 
          notice.  In Ohio, public notice is required for new drilling 
          permit applications, and the 500 feet radius notification 
          requirement is also used.  In West Virginia, neighbors, for the 
          purpose of notification, can be up to 1,500 feet away if an 
          aquifer is involved.  In all three of these states, the local 
          government is also notified at the time of the permit 
          application and information about fracking plans must also be 
          disclosed.  Although often required, advance notice requirements 
          for fracking operations may be short (for example, 48 hours in 
          Colorado).

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          PROPOSED LAW
          This bill would:
                 Extend to 15 working days the time for the supervisor to 
               respond to drilling permit applications
                 For drilling a well, require that the well owner or 
               operator provide notification 20 calendar days in advance 
               of drilling to surface property owners and occupants either 
               within 300 feet of the wellhead or who live above a clean 
               water aquifer that the well is likely to pierce.
                 For hydraulic fracturing a well, require that the well 
               owner or operator provide notification 30 calendar days in 
               advance of undertaking hydraulic fracturing operations to 
               surface property owners and occupants within 300 feet of 
               the wellhead or within 300 feet of the horizontal 
               projection of the subsurface portion of the well to the 
               surface or who live above a clean water aquifer that the 
               well pierces.  Both advance notification of the fracking of 
               exploratory wells and annual reports to the Legislature on 
               fracking notification are required.
                 For both drilling and hydraulic fracturing operations, 
               notification is as specified and includes information about 
               where the well is located, a description of drilling or 
               fracking, as approriate, when drilling or fracking will 
               occur and how to find out more.  Water suppliers and local 
               government would also be notified and the list of neighbors 
               notified would be provided to DOGGR.  The well owner or 
               operator would also be required to notify the neighbors if 
               no well is drilled or fracked.

          ARGUMENTS IN SUPPORT
          According to the author, "SB 1054 requires well owners and 
          operators to tell their neighbors  before  undertaking drilling or 
          fracking operations.  It's a simple 'no surprises' policy to 
          give the well's neighbors advance notice providing them with the 
          option to take any precautionary measures they choose.  A 
          uniform, state-wide policy minimizes inequities based upon where 
          one lives and promotes transparency. Oil and gas production and 
          all its related processes have the potential to adversely impact 
          our water and natural resources, property values and quality of 
          life.  Fracking may pose considerable environmental risks, but 
          we have no information to even assess the extent of the practice 
          here in California.  SB 1054 will provide the data needed to 
          start answering concerns about fracking now.  The practice is 
          expected to become even more prevalent in the future."

          The Environment Working Group points out that the "drilling or 
          fracking of a well is a significant development project.  The 
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          nature of the drilling and fracking process involves the use of 
          heavy equipment, chemicals, copious amounts of water, and often 
          accompanying noise, light, and dust.  It is fair and reasonable 
          that a neighbor Ý?] be notified in advance.  After all, 
          neighbors receive a notice for development projects such as a 
          variance to decrease a side yard setback in a residential zone.  
          It is important to point out that SB 1054 would not initiate any 
          new permit process or establish any new appeals or hearings."  
          Clean Water Action agrees and states that SB 1054 "?is a 
          necessary minimum first step towards ensuring that oil and gas 
          drilling in California is conducted safely."

          ARGUMENTS IN OPPOSITION
          The Western States Petroleum Association argues that SB 1054 
          "requires unnecessary and overly burdensome requirements" and 
          that it represents "a solution looking for a problem." WSPA 
          continues that this "legislation will slow oil and gas 
          development by increasing the legally acceptable permit review 
          time by 50%, from 10 to 15 days" and that "the bill does not 
          recognize the existing contracts ("surface use agreement") 
          between surface and mineral owners that specify how oil and gas 
          development can occur."  Further, "SB 1054 is redundant to 
          existing California Civil Code 848 that requires the mineral 
          owner give written notice and a description of the extent, 
          timing and location of their extraction operation to the surface 
          owner and any interested public utility."  The California 
          Chamber of Commerce's comments also stress the "excessive and 
          unnecessary" burden of the advance notification requirements.

          COMMENTS 
           Is 300 feet sufficient  ?  One definition of a "critical" well is 
          a well within 300 feet of "any building intended for human 
          occupancy that is not necessary to the operation of the well" 
          (Title 14, California Code of Regulations, section 1720).  
          Additional safety features are required for critical wells to 
          prevent acute hazards.  The definition of neighbors for wells 
          that are going to be fracked is expanded to incorporate the 
          horizontal dimensions of the well due to the capabilities of 
          directional drilling.  Wells can now extend thousands of feet 
          horizontally. Many neighbors of oil and gas wells may simply be 
          unaware of their proximity as a result of this technology.

           Is state-wide advance notice to neighbors necessary  ?  With 
          advance notice of drilling and hydraulic fracturing operations, 
          the neighbors of the well are provided sufficient time to 
          prepare, if they care to.  Given the public concern about the 
          potential for environmental contamination from fracking, 
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          baseline water and soil samples, as applicable, could be taken, 
          stored or analyzed by the neighbors.  

          It is existing state policy that the owners of mineral rights 
          notify the surface property owner in advance of entering their 
          property and beginning an "extraction operation" (Civil Code 
          (CIV) § 848, discussed below).  However, only the surface 
          property owner - not the neighboring owners, any occupants, 
          local government or local water supplier (if applicable)  - 
          receive advance notice.  While some local governments provide 
          advance notice to neighbors of planned drilling or fracking, a 
          California resident may not necessarily find out in advance 
          about drilling.  The Committee may wish to expand existing state 
          policy to include the neighbors.

          How long is "too long" to wait for a permit  ?  The increase from 
          10 to 15 working days for DOGGR's action on a drilling permit is 
          an increase of 50%, but is one work week.  Fifteen days is a 
          reasonably quick turn-around and is comparable to practices in 
          other states.  It is also, apparently, not uncommon for DOGGR to 
          notify the applicant within the 10 working day period that the 
          permit is still under review.  The preliminary 2010 Report on 
          oil and gas production shows that from 2006 - 2010 there were 
          considerably (up to approximately 1/3) more new permits applied 
          for than actually used.  Each permit is good for one year from 
          the date of issuance.  This suggests that current industry 
          practice includes applying for many new well permits much 
          further in advance then 10 working days.

           Existing notification requirements   As noted above, there is an 
          existing notification requirement to surface property owners.  
          An owner of mineral rights (CIV § 883.110) must provide written 
          notice to the surface property owner and to any public utility 
          with interest in the property prior to entering the property to 
          being prospecting, mining or extraction operations (CIV § 848).  
          The notice must include the location and extent of the planned 
          operations, as well as when the mineral rights owner will be on 
          the property.  Methods of providing the notice are specified as 
          is the penalty for failure to comply with the notice 
          requirements.  
           
          There is at least a partial, but by no means necessarily 
          complete, overlap between the existing notification requirements 
          described above and those proposed in SB 1054.  In order to 
          avoid duplication, however, advance notification under existing 
          law, where it meets the criteria specified in SB 1054, is 
          sufficient (Amendment 1).
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           Confidentiality applies to production records.   Section 3243 in 
          the Public Resources Code provides for the production records of 
          exploratory wells to remain confidential for a specified period 
          of time.  SB 1054's advance notification requirements are not 
          production well records (PRC §§ 3210 - 3213) and are therefore 
          not subject to confidentiality (Amendment 2).  
           
           The appropriate location for hydraulic fracturing notification 
          records?   Production records include well logs (PRC § 3211), 
          core records (PRC § 3212) and history (PRC § 3213) and are as 
          defined.  The well owner and operator is charged with keeping 
          accurate and complete records (PRC § 3210).  The recording of 
          the time period when a well is fracked is not explicitly 
          consistent with the definitions cited above (Amendment 3).  
           
           What if hydraulic fracturing doesn't work  ?  The definition 
          provided for hydraulic fracturing implies that the technique is 
          always successful at improving hydrocarbon production from a 
          well.  Hydraulic fracturing treatments that do not succeed 
          should be included, in addition to other clarifying technical 
          changes (Amendment 4).

           Additional clarifying amendments.   Hydraulic fracturing notice 
          timing requirements are all in calendar days (Amendment 5). The 
          material provided to the supervisor is clarified (Amendment 6), 
          and annual reporting requirements to the legislature are 
          standardized (Amendment 7).  
           
           Recent Budget history.   In the last two budgets, DOGGR has 
          received authorization for 35 new positions to help improve its 
          regulatory capabilities.  These are fewer positions than it 
          sought, and, according to DOGGR, there has been difficulty in 
          filling them.  According to the Legislative Analyst's Office, 13 
          positions remain unfilled, although recent administrative 
          changes offer the promise of larger pools of qualified 
          candidates, particularly engineers.  Budget change proposal 
          language in Fiscal Year (FY) 2010/2011 specifically directed 
          DOGGR to address the regulation of fracking, although the 
          trailer bill language only considered the UIC program.  Trailer 
          bill language in FY 2011/2012 also allowed DOGGR to begin 
          evaluating fracking regulation.  To the recent frustration of 
          both Senate and Assembly Budget Sub-committees on resources, 
          DOGGR still has taken no specific action to regulate fracking 
          until last week when it called for voluntary reporting by the 
          industry to the web-site "fracfocus.org," and announced plans to 
          convene a scientific advisory panel on the topic, and hold 
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          "listening sessions" across the state.  The Budget 
          sub-committees have held open DOGGR's current request pending 
          the receipt of additional data, including a workload analysis.  
          Admittedly, both a new director of the Department of 
          Conservation and a supervisor were recently appointed and focus 
          continues on the UIC program.

           Is fracking safe  ?  It is impossible to answer that question for 
          California today given the lack of available information.  
          However, plausible mechanisms exist for significant subsurface 
          fluid and/or gas migration, including breaches of the integrity 
          of the well-casing or reservoir.  As noted in an earlier 
          section, there is considerable evidence that suggests the 
          increasing concern about the potential public health and 
          environmental impacts of the practice is warranted.  
          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.  
          Additionally, the composition of fluids injected into some wells 
          cannot even be identified by well owners or operators.  This is 
          considered proprietary information by the product manufacturer 
          and is not disclosed.

           Related legislation
           AB 591 (Wieckowski) - would require disclosure of hydraulic 
          fracturing and fracking fluid chemical composition to DOGGR 
          after operations have occurred, among other related provisions.  
          Currently in Senate Appropriations Suspense file.

          AB 1966 (Ma) -  would require mineral rights owners to provide 
          advance notice and other information to surface property owners, 
          as specified. Before Assembly Natural Resources

          SUGGESTED AMENDMENTS 

               AMENDMENT 1  
               Page 4, between lines 18 - 19, add the following:
               "(c) Notice required pursuant to Civil Code section 848 
               meeting all of the criteria specified in this section shall 
               be deemed to comply with this section, and shall be 
               included in the report to the supervisor or district deputy 
               pursuant to paragraph (4) of subdivision (b)."
               Page 5, between lines 38 - 39, add the following:
               "(c) Notice required pursuant to Civil Code section 848 
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               meeting all of the criteria specified in this section shall 
               be deemed to comply with this section, and shall be 
               included in the report to the supervisor or district deputy 
               pursuant to paragraph (4) of subdivision (b)."

               AMENDMENT 2 
               Page 5, lines 39 - 40: delete both lines in their entirety
               
               AMENDMENT 3  
               Page 5, line 37: replace "3210" with "3213"
               Page 6, after line 8: add the following:
               "SEC. 4. Section 3213 of the Public Resources Code is 
               amended to read:
               The history shall show the location and amount of 
               sidetracked casings, tools, or other material, the depth 
               and quantity of cement in cement plugs, the shots of 
               dynamite or other explosives, and the results of production 
               and other tests during drilling operations.   This includes 
               the time period that hydraulic fracturing treatments are 
               performed  ."

               AMENDMENT 4  
               Page 4, delete lines 29 - 31, inclusive, and replace with:
               "stimulation treatment that typically includes the 
               pressurized injection of water and other materials into an 
               underground geologic formation in order to create or 
               propagate fractures in the formation, thereby or with the 
               intent of"

               AMENDMENT 5  
               Page 5, line 29: insert "calendar" between "20" and "days"
           
                AMENDMENT 6  
               Page 4, line 13: after "notice" insert "and a copy of the 
                                     information provided in the notice"
               Page 5, line 28: after "notice" insert "and a copy of the 
               information provided in the notice"

               AMENDMENT 7  
               Page 6, line 2: insert "thereafter" between "year" and the 
               comma following "year"
               Page 6, delete lines 3 - 5, inclusive, and insert 
               "Legislature a written report describing compliance with 
               this section."
               Page 6, line 8: following "the results." add "The report 
               shall be submitted in compliance with section 9795 of the 
               Government Code."
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          SUPPORT
          Environmental Working Group (sponsor)
          Clean Water Action
          Environment California
          Planning and Conservation League
          California Coastal Protection Network
          Sierra Club California
          California League of Conservation Voters
          League of Women Voters
          Earthworks

          OPPOSITION
          California Manufacturers and Technology Association
          Western States Petroleum Association
          California Chamber of Commerce































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