BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 665
                                                                  Page  1

          Date of Hearing:   August 21, 2013

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                  Mike Gatto, Chair

                     SB 665 (Wolk) - As Amended:  August 5, 2013 

          Policy Committee:                             Natural  
          ResourcesVote:6-3

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill increases the required amount of indemnity bonds an  
          oil and gas operator must file with the Division of Oil, Gas and  
          Geothermal Resources (DOGGR) for its well operations.   
          Specifically, this bill: 

          1)Increases the individual indemnity bond amount to $100,000 for  
            each well, regardless of well depth.  Current amounts range  
            from $15,000 to $30,000 depending on well depth.

          2)Increases the number of operating wells necessary to be  
            eligible for a blanket indemnity bond from one or more to 20  
            or more wells.  

          3)Increases the blanket indemnity bond amount to $2 million  
            regardless of the number of wells.  Currently, blanket  
            indemnity requirements are $100,000 for fewer than 50 wells  
            and 250,000 for 50 wells or more.   

          4)Increases the blanket indemnity bond amount for a bond that  
            includes coverage for idle wells from $1 million to $5  
            million.   

          5)Increases the class II commercial wastewater disposal well  
            indemnity bond amount from $50,000 to $100,000.

           FISCAL EFFECT  

          Negligible state costs.

           COMMENTS  








                                                                  SB 665
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           1)Purpose.   According to the author, this bill is intended to  
            update and increase indemnity bond requirements to ensure that  
            adequate funds are available to address any necessary  
            environmental clean-up resulting from well drilling and  
            plugging.  

          2)Background.   DOGGR is responsible for supervising the  
            drilling, operation, maintenance, and abandonment of oil and  
            gas wells in the state and, to the extent possible, preventing  
            damage to life, health, property, and natural resources,  
            including underground and surface waters suitable for  
            irrigation or domestic purposes.  
                 
              
             DOGGR is governed by state and federal law with regard to  
            wells that inject fluids associated with oil and natural gas  
            production operations (Class II wells).  

            The federal Safe Drinking Water Act requires the United States  
            Environmental Protection Agency to develop minimum federal  
            requirements for the Underground Injection Control (UIC)  
            programs designed to control the injection of wastes into  
            underground sources of drinking water.  

            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.  
           
          3)Support and Opposition.    This bill is supported by  
            environmental organizations and opposed by independent oil and  
            gas operators.  

          4)Amendments.   The author has agreed to accept amendments to  
            reduce the individual indemnity bond amounts charged for  
            individual onshore wells from $100,000 to $25,000 for wells  








                                                                  SB 665
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            less than 5,000 feet deep and $40,000 for wells 5,000 feet  
            deep or more.  
           
           Analysis Prepared by :    Jennifer Galehouse / APPR. / (916)  
          319-2081