BILL ANALYSIS �
SB 665
Page 1
SENATE THIRD READING
SB 665 (Wolk)
As Amended September 4, 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)Requires an oil and gas well operator to file with DOGGR an
individual indemnity bond for each oil and gas well drilled,
redrilled, deepend, or permanently altered, in the following
amounts: $25,000 for a well that is less than 10,000 feet deep
and $40,000 for a well that is 10,000 or more feet.
2)Increases the amount of wells an operator must have to be
eligible for a blanket indemnity bond to 20 or more wells.
3)Increases the blanket indemnity bond amount for oil and gas
wells to $400,000.
4)Increases the blanket indemnity bond amount for oil and gas
wells to $200,000 for any operator having 50 or fewer wells in
the state, exclusive of properly abandoned wells.
5)Increases the blanket indemnity bond amount for oil and gas
wells to $2 million if it includes the bond or fee required
for idle wells.
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6)Increases the blanket indemnity bond for oil and gas wells
located on state submerged lands to $1,000,000.
7)Increases the class II commercial wastewater disposal well
indemnity bond amount to $100,000.
EXISTING LAW :
1)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.
2)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.
3)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.
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4)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."
Background. 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)
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
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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 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
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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: 0002400