BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                 UNFINISHED BUSINESS


          Bill No:  SB 665
          Author:   Wolk (D)
          Amended:  9/4/13
          Vote:     21

           
           SENATE NATURAL RESOURCES AND WATER COMMITTEE  :  7-2, 4/23/13
          AYES:  Pavley, Evans, Hueso, Jackson, Lara, Monning, Wolk
          NOES:  Cannella, Fuller

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

           SENATE FLOOR  :  26-12, 5/28/13
          AYES:  Beall, Block, Calderon, Corbett, Correa, De León,  
            DeSaulnier, Evans, Galgiani, Hancock, Hernandez, Hill, Hueso,  
            Jackson, Lara, Leno, Lieu, Liu, Monning, Padilla, Pavley,  
            Price, Steinberg, Wolk, Wright, Yee
          NOES:  Anderson, Berryhill, Cannella, Emmerson, Fuller, Gaines,  
            Huff, Knight, Nielsen, Roth, Walters, Wyland
          NO VOTE RECORDED:  Torres, Vacancy

           ASSEMBLY FLOOR  :  Not available


           SUBJECT  :    Oil and gas:  drilling:  indemnity bonds

           SOURCE  :     Author


           DIGEST  :    This bill 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.
                                                                CONTINUED





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           Assembly Amendments  increase the individual indemnity bond  
          amount to $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; increases  
          the class II commercial wastewater disposal well indemnity bond  
          amount to $100,000; increase the indemnity bond amount for oil  
          and gas wells; and make technical changes.

           ANALYSIS  :   

          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  







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             with DOGGR a blanket indemnity bond for $250,000 to cover all  
             his/her operations in drilling, redrilling, deepening, or  
             permanently altering the casing in any of his/her wells  
             located on those submerged lands.   

          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.

          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. 

          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.

           Background
           
          The DOGGR is located within the California Natural Resources  
          Agency and is the state's oil and gas regulator.  The Supervisor  







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          has broad authority to regulate the drilling, operation,  
          maintenance and abandonment of wells to prevent damage to life,  
          health, property and natural resources.

          Since 1939, the Legislature has required oil and gas well  
          operators to provide indemnity bonds whenever they drill,  
          redrill, deepen, or otherwise permanently alter a well.  These  
          bonds serve to ensure that any possible environmental damage  
          caused by the drilling can be repaired, particularly in the  
          event that an operator becomes insolvent, deserts the well, or  
          is otherwise unavailable or incapable of cleaning up any damage  
          that may have been caused.  The bonds are returned to the well  
          operator when all drilling activities have ceased and the well  
          becomes operational.

          Well operators currently may fulfill this bonding requirement in  
          one of two ways.  They may post an individual bond for each  
          well, with the required amount varying depending on the depth of  
          the well.  This is because the possibility of blow-outs, aquifer  
          contamination, and other catastrophic accidents increases as  
          wells go deeper, due to increased pressure and temperature.

          The other option is to post a blanket indemnity bond for all the  
          wells an operator may be drilling, as well as for idle wells.   
          An idle well is a well that has not been used for a continuous  
          six-month period during the past five years.  For an operator  
          with 50 or fewer wells, a limited blanket bond with no idle well  
          coverage is $100,000; for an operator with over 50 wells it is  
          $250,000.  Current law also allows an operator to post a bond  
          for $1,000,000 to cover all idle well requirements, no matter  
          how many wells in California are being drilled by the operator.

          The current bonding levels have not been adjusted since 1998.   
          DOGGR acknowledged that the bond levels are too low in a  
          November 2012 letter to the U.S.  Environmental Protecting  
          Agency (EPA), in response to an EPA audit of DOGGR's oversight  
          of California's underground injection program.  

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

           SUPPORT  :   (Verified  9/4/13)

          Environmental Working Group







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          Natural Resources Defense Council
          Sierra Club California

           ARGUMENTS IN SUPPORT  :    According to the author, "these current  
          bonding requirements were enacted into law in 1999.  It may now  
          be necessary to increase these 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."

          The Natural Resources Defense Council concurs and adds "? the  
          bond is supposed to be protecting [the division] from having to  
          expend significant public funds when responding to oil and gas  
          drilling or production violations.  The bonding requirement is a  
          good policy tool to attempt to shift the financial burden of  
          responding to such violations from the state to the oil and gas  
          drillers."  They continue, "the problem is that the bonding  
          levels in California are too low and do not adequately protect  
          the public from expenditures to remedy violations related to oil  
          and gas wells."  Additionally, "these increases are long overdue  
          and will better offset the state's costs for responding to oil  
          and gas well violations."


          RM:d  9/6/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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