BILL ANALYSIS �
SB 665
Page 1
SENATE THIRD READING
SB 665 (Wolk)
As Amended August 5, 2013
Majority vote
SENATE VOTE :26-12
NATURAL RESOURCES 6-3 APPROPRIATIONS 12-5
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|Ayes:|Chesbro, Garcia, |Ayes:|Gatto, Bocanegra, |
| |Muratsuchi, Skinner, | |Bradford, |
| |Stone, Williams | |Ian Calderon, Campos, |
| | | |Eggman, Gomez, Hall, |
| | | |Holden, Pan, Quirk, Weber |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Grove, Bigelow, Patterson |Nays:|Harkey, Bigelow, |
| | | |Donnelly, Linder, Wagner |
| | | | |
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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.
Specifically, 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 eligible
for a blanket indemnity bond to 20 or more wells. Increases the
blanket indemnity bond amount to $2 million, 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
million.
3)Increases the class II commercial wastewater disposal well
indemnity bond amount to $100,000.
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
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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 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 million, which also includes the bond or fee
required for idle mines.
5)Requires a person who engages in the drilling, redrilling,
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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.
FISCAL EFFECT : According to the Assembly Appropriations Committee,
negligible state costs.
COMMENTS : 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 environmental clean-up
needs that may arise when a well is drilled or redrilled."
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 underground injection control (UIC)
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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 the state 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 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 for class II wells were established in 1998
by SB 1763 (Costa), Chapter 845.
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 program 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 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
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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.
Analysis Prepared by : Mario DeBernardo / NAT. RES. / (916)
319-2092
FN: 0001858