BILL ANALYSIS �
SB 665
Page 1
Date of Hearing: August 12, 2013
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
SB 665 (Wolk) - As Amended: August 5, 2013
SENATE VOTE : 26-12
SUBJECT : Oil and gas: drilling: wells
SUMMARY : Increases the statutory amount for indemnity bonds
that an oil and gas well operator is required to file with the
Division of Oil, Gas and Geothermal Resources (DOGGR) for its
well operations.
EXISTING LAW :
1)Requires the DOGGR to supervise the drilling, operation,
maintenance, and abandonment of wells and the operation,
maintenance, and removal or abandonment of tanks and
facilities attendant to oil and gas production, including
certain pipelines that are within an oil and gas field, so as
to prevent, as far as possible, damage to life, health,
property, and natural resources; damage to underground oil and
gas deposits from infiltrating water and other causes; loss of
oil, gas, or reservoir energy; and damage to underground and
surface waters suitable for irrigation or domestic purposes by
the infiltration of, or the addition of, detrimental
substances.
2)Requires the operator of any oil and gas well, before
commencing the work of drilling the well, to file with DOGGR a
written notice of intention to commence drilling. Prohibits
the commencement of drilling until approval is given by DOGGR.
If DOGGR fails to give the operator written response to the
notice within 10 working days from the date of receipt,
requires that failure to be considered an approval of the
notice.
3)Requires an oil and gas well operator who engages in the
drilling, redrilling, deepening, or in any operation
permanently altering the casing, of a well to file with DOGGR
an individual indemnity bond for the well. Requires the
indemnity bond to be $15,000 for each well less than 5,000
feet deep, $20,000 for each well at least 5,000 feet but less
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than 10,000 feet deep, and $30,000 for each well 10,000 or
more feet deep. Requires the bond to be filed with DOGGR at
the time of the filing of the notice of intention to perform
work on the well.
4)Authorizes an oil and gas well operator who engages in the
drilling, redrilling, deepening, or in any operation
permanently altering the casing, of one or more wells at any
time, to file with DOGGR one blanket indemnity bond to cover
all of the operations in any of its wells in the state in lieu
of an individual indemnity bond for each operation. Requires
the bond to be provided in one of the following amounts, as
applicable:
a) The sum of $250,000;
b) The sum of $100,000 for any operator having 50 or fewer
wells in the state; or
c) The sum of $1,000,000, which also includes the bond or
fee required for idle mines.
5)Requires a person who engages in the drilling, redrilling,
deepening, or in any operation permanently altering the
casing, of one or more wells located on submerged lands under
ocean waters within the jurisdiction of this state, to file
with DOGGR a blanket indemnity bond for $250,000 to cover all
his or her operations in drilling, redrilling, deepening, or
permanently altering the casing in any of his or her wells
located on those submerged lands. In addition to the $250,000
blanket indemnity bond, requires any person who operates one
or more wells that are located on tide or submerged lands
within the jurisdiction of this state to provide an additional
amount of security acceptable to DOGGR that covers the full
costs of plugging and abandoning all of the operator's wells.
6)Requires a person who engages in the operation of a Class II
commercial wastewater disposal well to file an indemnity bond
with DOGGR for $50,000 for each well so used. Authorizes the
bond to be terminated and canceled and the surety be relieved
of all obligations thereunder when the well is properly
abandoned or another valid bond has been substituted therefor.
7)Authorizes an individual or blanket indemnity bond for an oil
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and gas well(s) to be terminated and canceled and the surety
be relieved of all obligations thereunder when the well(s)
covered by such bond have been "properly completed" or
"properly abandoned" or another valid bond has been
substituted therefor. Establishes that a well is "properly
completed" when it has been shown, to the satisfaction of
DOGGR, that the manner of producing oil or gas or injecting
fluids into the well is satisfactory and that the well has
maintained production of oil or gas or injection for a
continuous six-month period. Establishes that a well is
"properly abandoned" when it has been shown, to the
satisfaction of DOGGR, that all proper steps have been taken
to isolate all oil-bearing or gas-bearing strata encountered
in the well, and to protect underground or surface water
suitable for irrigation or farm or domestic purposes from the
infiltration or addition of any detrimental substance and to
prevent subsequent damage to life, health, property, and other
resources.
THIS BILL :
1)Increases the individual indemnity bond amount to $100,000 for
each well, regardless of well depth.
2)Increases the amount of wells an operator must have to be
eligibile for a blanket indemnity bond to 20 or more wells.
Increases the blanket indemnity bond amount to $2,000,000,
regardless of number of wells. Increases the blanket
indemnity bond amount for a bond that includes the bond or fee
required for idle wells to $5,000,000.
3)Increases the class II commercial wastewater disposal well
indemnity bond amount to $100,000.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS :
Purpose of the Bill. According to the author, the purpose of
this bill is to update outdated indemnity bonds requirements "to
ensure that adequate funds are available to address any
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environmental clean-up needs that may arise when a well is
drilled or redrilled."
Background. Pursuant the Public Resources Code, DOGGR is
responsible for supervising the drilling, operation,
maintenance, and abandonment of oil and gas wells in the state
so as to prevent, as far as possible, damage to life, health,
property, and natural resources, including underground and
surface waters suitable for irrigation or domestic purposes. As
part of this duty, DOGGR is also required to permit the owners
or operators of a well to utilize all suitable methods and
practices known to the oil industry for the purpose of
increasing the ultimate recovery of underground hydrocarbons.
For wells that inject fluids associated with oil and natural gas
production operations (Class II wells), DOGGR's authority stems
specifically from the Public Resources Code and the federal Safe
Drinking Water Act (SDWA). The SDWA requires the United States
Environmental Protection Agency (U.S. EPA) to develop minimum
federal requirements for the UIC program, which is designed to
control the injection of wastes into "underground sources of
drinking water." Under the SDWA, a state may have primary
enforcement responsibility if it adopts and implements a UIC
program that meets federal requirements. DOGGR received primary
enforcement responsibility for Class II wells through an
agreement with the U.S. EPA in the early 1980s. DOGGR maintains
this responsibility until either it transfers it back to the
U.S. EPA or the U.S. EPA determines that the state program is
not in compliance with the SDWA.
Under DOGGR's Class II UIC primacy program, an oil and gas well
operator may demonstrate financial responsibility by filing an
individual indemnity or cash bond for each well drilled or a
blanket bond covering all well operations. Individual bonds are
normally released after an injection well has injected fluids
for a six-month continuous period if DOGGR is satisfied that a
well is mechanically sound. Blanket bonds are normally not
released until all of the operator's wells are abandoned or
until the operator specifically requests the release of a well
from bond coverage. After the release of a bond, DOGGR still
has the authority to order an operator to perform remedial or
corrective work on a well.
The current bond amounts required for Class II wells were
established by legislation in 1998 (SB 1763, Costa).
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U.S. EPA Audit. In the spring of 2010, U.S. EPA undertook a
comprehensive review of DOGGR's implementation of the Class II
UIC primacy program. The goals of this program evaluation were
to review how DOGGR oversees and manages the permitting,
drilling, operation, maintenance and plugging/abandonment of
Class II wells and to identify program implementation
recommendations.
The final report for this review was released in 2011, which
indicated that there are several program deficiencies and areas
for improvement. One issue raised in the report is whether the
required indemnity bond amounts for Class II wells are
sufficient. The report concluded that the current bond
requirements, which, as mentioned above, were established in
1998, "are probably not adequate to cover the full cost to plug
and abandon a well when that becomes necessary.
On November 16, 2012, DOGGR submitted an "Underground Injection
Control Action Plan" to the U.S. EPA in response to the 2011
report. In this action plan, DOGGR stated that "[the bonding]
amounts are outdated and therefore insufficient." The action
plan also state's DOGGR's desire to increase the bond to a
reasonable level. The author of this bill has consulted DOGGR,
the surety bond industry, and has reviewed information from
other oil and gas producing states to arrive at the amounts
proposed in this bill.
Orphan Well Program. Members of the oil and gas industry assert
that the state's orphan well program is a sufficient backup plan
when there are well problems and a bond or the operator cannot
cover the costs of addressing the problems. DOGGR, however, is
limited in how much it can spend each year on orphan wells and
has an orphan well wait list. Moreover, excessively low bonding
amounts do not allow DOGGR quick access to abandonment and
remediation funds. And insufficient bonding, or lack of
bonding, removes an incentive for operators to properly plug and
abandon wells. Therefore, some marginal operators may decide it
is easier to walk away from a well rather than incur the
plugging and abandonment cost.
REGISTERED SUPPORT / OPPOSITION :
Support
SB 665
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Clean Water Action
Environmental Working Group
Natural Resources Defense Council
Sierra Club California
Opposition
California Independent Petroleum Association
Vern Jones Oil & Gas Corporation
Analysis Prepared by : Mario DeBernardo / NAT. RES. / (916)
319-2092