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.
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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 9/6/13)
Clean Water Action
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Environmental Working Group
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 9/9/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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