BILL ANALYSIS Ó ----------------------------------------------------------------- | | | SENATE COMMITTEE ON NATURAL RESOURCES AND WATER | | Senator Fran Pavley, Chair | | 2011-2012 Regular Session | | | ----------------------------------------------------------------- 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 1 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 2 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). 3 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 4 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, 5 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). 6 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 7 "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 8 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." 9 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 10