Amended in Senate April 16, 2013

Senate BillNo. 665


Introduced by Senator Wolk

February 22, 2013


An act to amend Sections 3204, 3205,begin insert andend insert 3205.1begin delete, and 3205.2end delete of the Public Resources Code, relating to oil and gas.

LEGISLATIVE COUNSEL’S DIGEST

SB 665, as amended, Wolk. Oil and gas: drilling: indemnity bonds.

Existing law requires an operator of an oil or gas well, or a well located on submerged lands under ocean waters,begin delete or a class II commercial wastewater disposal well,end delete who engages in the drilling, redrilling, deepening, or in any operation altering the casing, of any wellbegin delete, or in maintaining or abandoning the well or attendant facilities in regard to the wastewater disposal wells,end delete to file with the State Oil and Gas Supervisor an indemnity bondbegin delete in a specified amountend deletebegin insert in an amount based on the depth of the well or a blanket indemnity bond in a specified amountend insert, but permits the operator, with the approval of the supervisor, to make certain deposits in lieu of the bond.

This bill wouldbegin delete delete the amounts specified in these provisions for indemnity bonds and deposits in lieu of indemnity bonds, leaving those amounts unspecifiedend deletebegin insert instead require the amount of the indemnity bond for any well to be $100,000. The bill would authorize an operator operating 20 or more wells at any time to file a blanket indemnity bond to cover the operation of all the operator’s wells, in lieu of an individual indemnity bond for each well, in an amount of either $2,000,000, which would not include bonds or fees required for idled wells, or $5,000,000, which would include bonds or fees required for idled wells. The bill would increase the amount of the blanket indemnity bond required to be filed by an operator operating one or more wells located on submerged lands under ocean waters to $1,000,000end insert.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 3204 of the end insertbegin insertPublic Resources Codeend insertbegin insert is
2amended to read:end insert

3

3204.  

begin deleteAny end deletebegin insertAn end insertoperator who, on or after January 1,begin delete 1999end deletebegin insert 2014end insert,
4engages in the drilling, redrilling, deepening, or in any operation
5permanently altering the casing, ofbegin delete anyend deletebegin insert aend insert well shall file with the
6supervisor an individual indemnity bond in thebegin delete specifiedend delete sumbegin insert of
7one hundred thousand dollars ($100,000)end insert
for each well so drilled,
8redrilled, deepened, or permanently altered.begin delete This sum shall be
9fifteen thousand dollars ($15,000) for each well less than 5,000
10feet deep, twenty thousand dollars ($20,000) for each well at least
115,000 feet but less than 10,000 feet deep, and thirty thousand
12dollars ($30,000) for each well 10,000 or more feet deep. The bond
13shall be filed with the supervisor at the time of the filing of the
14notice of intention to perform work on the well, as provided in
15Section 3203. The bond shall be executed by the operator, as
16principal, and by an authorized surety company, as surety,
17conditioned that the principal named in the bond shall faithfully
18comply with all the provisions of this chapter, in drilling, redrilling,
19deepening, or permanently altering the casing in any well or wells
20covered by the bond, and shall secure the state against all losses,
21charges, and expenses incurred by it to obtain such compliance by
22the principal named in the bond.end delete

23The conditions of the bond shall be stated in substantially the
24following language: “If the ____, the above bounden principal,
25shall well and truly comply with all the provisions of Division 3
26(commencing with Section 3000) of the Public Resources Code
27and shall obey all lawful orders of the State Oil and Gas Supervisor
28or the district deputy or deputies, subject to subsequent appeal as
29provided in that division, and shall pay all charges, costs, and
30expenses incurred by the supervisor or the district deputy or
31deputies in respect of the well or wells or the property or properties
32of the principal, or assessed against the well or wells or the property
33or properties of the principal, in pursuance of the provisions of
P3    1that division, then this obligation shall be void; otherwise, it shall
2remain in full force and effect.”

3begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 3205 of the end insertbegin insertPublic Resources Codeend insertbegin insert is amended
4to read:end insert

5

3205.  

begin deleteAny end deletebegin insertAn end insertoperator who engages in the drilling, redrilling,
6deepening, or in any operation permanently altering the casing, of
7begin delete oneend deletebegin insert 20end insert or more wells at any time, may file with the supervisor one
8blanket indemnity bond to cover all the operations in any of its
9wells in the state in lieu of an individual indemnity bond for each
10operation as required by Section 3204. The bond shall be executed
11by the operator, as principal, and by an authorized surety company,
12as surety, and shall be in substantially the same language and upon
13the same conditions as provided in Section 3204, except as to the
14difference in the amount. The bond shall be provided in one of the
15following amounts, as applicable:

16(a) The sum ofbegin delete two hundred fifty thousandend deletebegin insert two millionend insert dollars
17begin delete ($250,000)end deletebegin insert ($2,000,000)end insert, which does not include the bond or fee
18required in Section 3206. A blanket surety bond provided prior to
19January 1, 1999, shall be increased to comply with this subdivision
20on or before January 1,begin delete 2001end deletebegin insert 2014end insert. A blanket cash bond provided
21prior to January 1,begin delete 1999end deletebegin insert 2015end insert, shall be increased begin delete by a minimum
22of thirty thousand dollars ($30,000) per year, initially payable
23January 1, 2000, and yearly on January 1, thereafter, until the
24amount on deposit is sufficientend delete
to comply with this subdivisionbegin insert on
25or before January 1, 2016end insert
.

begin delete

26(b) The sum of one hundred thousand dollars ($100,000), which
27does not include the bond or fee required in Section 3206, for any
28operator having 50 or fewer wells in the state, exclusive of properly
29abandoned wells.

end delete
begin delete

30(c)

end delete

31begin insert(b)end insert The sum ofbegin delete oneend deletebegin insert fiveend insert million dollarsbegin delete ($1,000,000)end delete
32begin insert ($5,000,000)end insert, which does include the bond or fee required in
33Section 3206.

34begin insert

begin insertSEC. 3.end insert  

end insert

begin insertSection 3205.1 of the end insertbegin insertPublic Resources Codeend insertbegin insert is
35amended to read:end insert

36

3205.1.  

(a) Notwithstanding Sections 3204 and 3205,begin delete anyend deletebegin insert aend insert
37 person who engages in the drilling, redrilling, deepening, or in any
38operation permanently altering the casing, of one or more wells
39located on submerged lands under ocean waters within the
40jurisdiction of this state, shall file with the supervisor a blanket
P4    1indemnity bond forbegin delete two hundred fifty thousandend deletebegin insert one millionend insert dollars
2begin delete ($250,000)end deletebegin insert ($1,000,000)end insert to cover all his or her operations in
3drilling, redrilling, deepening, or permanently altering the casing
4in any of his or her wells located on those submerged lands. The
5bond shall be executed by the person, as principal, and by an
6authorized surety company, as surety, and the conditions of the
7bond shall be the same as the conditions stated in Section 3204,
8except for the difference in the amount.

9(b) In addition to providing the bond required by subdivision
10(a),begin delete anyend deletebegin insert aend insert person who operates one or more wells that are located
11on tide or submerged lands within the jurisdiction of this state shall
12provide an additional amount of security acceptable to the
13supervisor, covering the full costs of plugging and abandoning all
14of the operator’s wells. The supervisor shall determine the amount
15of the security required of each operator, based on his or her
16determination of the reasonable costs of that plugging and
17abandonment. The supervisor may not adjust the amount of security
18required of each operator more frequently than once every three
19years, to reflect changes in those costs. An operator may self-insure
20this security obligation if the supervisor, at his or her discretion,
21determines that the operator has sufficient financial resources to
22plug and abandon the wells for which the operator is responsible.
23The security shall remain in effect until all wells are plugged and
24abandoned in accordance with Section 3208, but the supervisor
25shall reduce the amount of the security required of an operator to
26reflect reduced obligations as wells are plugged and abandoned.

27(c) If the state lease or other agreement that sets forth obligations
28or performance requirements under the lease provides security that
29is equal to, or greater than, the total of the additional security
30required pursuant to subdivision (b), plus all other liabilities under
31the lease or other agreement, the supervisor shall not require the
32additional security.

begin delete
33

SECTION 1.  

Section 3204 of the Public Resources Code is
34amended to read:

35

3204.  

Any operator who, on or after January 1, 2014, engages
36in the drilling, redrilling, deepening, or in any operation
37permanently altering the casing, of any well shall file with the
38supervisor an individual indemnity bond in the specified sum for
39each well so drilled, redrilled, deepened, or permanently altered.
40This sum shall be ______ for each well less than 5,000 feet deep,
P5    1 ______ for each well at least 5,000 feet but less than 10,000 feet
2deep, and ______ for each well 10,000 or more feet deep. The
3bond shall be filed with the supervisor at the time of the filing of
4the notice of intention to perform work on the well, as provided
5in Section 3203. The bond shall be executed by the operator, as
6principal, and by an authorized surety company, as surety,
7conditioned that the principal named in the bond shall faithfully
8comply with all the provisions of this chapter, in drilling, redrilling,
9deepening, or permanently altering the casing in any well or wells
10covered by the bond, and shall secure the state against all losses,
11charges, and expenses incurred by it to obtain such compliance by
12the principal named in the bond.

13The conditions of the bond shall be stated in substantially the
14following language: “If the ____, the above bounden principal,
15shall well and truly comply with all the provisions of Division 3
16(commencing with Section 3000) of the Public Resources Code
17and shall obey all lawful orders of the State Oil and Gas Supervisor
18or the district deputy or deputies, subject to subsequent appeal as
19provided in that division, and shall pay all charges, costs, and
20expenses incurred by the supervisor or the district deputy or
21deputies in respect of the well or wells or the property or properties
22of the principal, or assessed against the well or wells or the property
23or properties of the principal, in pursuance of the provisions of
24that division, then this obligation shall be void; otherwise, it shall
25remain in full force and effect.”

26

SEC. 2.  

Section 3205 of the Public Resources Code is amended
27to read:

28

3205.  

Any operator who engages in the drilling, redrilling,
29deepening, or in any operation permanently altering the casing, of
30one or more wells at any time, may file with the supervisor one
31blanket indemnity bond to cover all the operations in any of its
32wells in the state in lieu of an individual indemnity bond for each
33operation as required by Section 3204. The bond shall be executed
34by the operator, as principal, and by an authorized surety company,
35as surety, and shall be in substantially the same language and upon
36the same conditions as provided in Section 3204, except as to the
37difference in the amount. The bond shall be provided in one of the
38following amounts, as applicable:

39(a) The sum of ______, which does not include the bond or fee
40required in Section 3206. A blanket surety bond provided prior to
P6    1January 1, 2014, shall be increased to comply with this subdivision
2on or before January 1, 2016. A blanket cash bond provided prior
3to January 1, 2014, shall be increased by a minimum of ______
4per year, initially payable January 1, 2015, and yearly on January
51, thereafter, until the amount on deposit is sufficient to comply
6with this subdivision.

7(b) The sum of ______, which does not include the bond or fee
8required in Section 3206, for any operator having 50 or fewer wells
9in the state, exclusive of properly abandoned wells.

10(c) The sum of ______, which does include the bond or fee
11required in Section 3206.

12

SEC. 3.  

Section 3205.1 of the Public Resources Code is
13amended to read:

14

3205.1.  

(a) Notwithstanding Sections 3204 and 3205, any
15person who engages in the drilling, redrilling, deepening, or in any
16operation permanently altering the casing, of one or more wells
17located on submerged lands under ocean waters within the
18jurisdiction of this state, shall file with the supervisor a blanket
19indemnity bond for ______ to cover all his or her operations in
20drilling, redrilling, deepening, or permanently altering the casing
21in any of his or her wells located on those submerged lands. The
22bond shall be executed by the person, as principal, and by an
23authorized surety company, as surety, and the conditions of the
24bond shall be the same as the conditions stated in Section 3204,
25except for the difference in the amount.

26(b) In addition to providing the bond required by subdivision
27(a), any person who operates one or more wells that are located
28on tide or submerged lands within the jurisdiction of this state shall
29provide an additional amount of security acceptable to the
30supervisor, covering the full costs of plugging and abandoning all
31of the operator’s wells. The supervisor shall determine the amount
32of the security required of each operator, based on his or her
33determination of the reasonable costs of that plugging and
34abandonment. The supervisor may not adjust the amount of security
35required of each operator more frequently than once every three
36years, to reflect changes in those costs. An operator may self-insure
37this security obligation if the supervisor, at his or her discretion,
38 determines that the operator has sufficient financial resources to
39plug and abandon the wells for which the operator is responsible.
40The security shall remain in effect until all wells are plugged and
P7    1abandoned in accordance with Section 3208, but the supervisor
2shall reduce the amount of the security required of an operator to
3reflect reduced obligations as wells are plugged and abandoned.

4(c) If the state lease or other agreement that sets forth obligations
5or performance requirements under the lease provides security that
6is equal to, or greater than, the total of the additional security
7required pursuant to subdivision (b), plus all other liabilities under
8the lease or other agreement, the supervisor shall not require the
9additional security.

10

SEC. 4.  

Section 3205.2 of the Public Resources Code is
11amended to read:

12

3205.2.  

(a) Notwithstanding Section 3204, any person who
13engages in the operation of a class II commercial wastewater
14disposal well, as defined in subdivision (d), shall file an indemnity
15bond with the supervisor for ______ for each well so used. The
16bond shall cover all operations of drilling, redrilling, deepening,
17altering casing, maintaining, or abandoning the well and attendant
18facilities. The bond shall be executed by the person as the principal,
19and by an authorized surety company as the surety, and, except
20for differences in the amount, shall be in substantially the same
21language and upon the same conditions as provided in Section
223204.

23(b) A blanket bond submitted under subdivision (a) or (c) of
24Section 3205 may be used in lieu of the bond required in
25subdivision (a), except that the termination and cancellation shall
26be in accordance with subdivision (c) of this section.

27(c) Notwithstanding Section 3207, any bond issued in
28compliance with this section may be terminated and canceled and
29the surety relieved of all obligations thereunder when the well is
30properly abandoned or another valid bond has been substituted
31therefor.

32(d) A class II commercial wastewater disposal well is a well
33that is used to dispose of oilfield wastewater for a fee and that is
34regulated by the division pursuant to this chapter and Subpart F
35(commencing with Section 147.250) of Part 147 of Title 40 of the
36 Code of Federal Regulations.

end delete


O

    98