BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 665| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 SB 665 Page 2 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 CONTINUED SB 665 Page 3 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 CONTINUED SB 665 Page 4 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 CONTINUED SB 665 Page 5 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 **** END **** CONTINUED