BILL ANALYSIS Ó SB 1281 Page 1 Date of Hearing: June 23, 2014 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Wesley Chesbro, Chair SB 1281 (Pavley) - As Amended: June 9, 2014 SENATE VOTE : 27-3 SUBJECT : Oil and gas production: water use: reporting SUMMARY : Requires the Division of Oil, Gas, and Geothermal Resources (DOGGR) to collect information regarding unlined oil and gas field sumps. In the event, and for the duration, of a declared state of emergency because of a drought, requires new oil and gas field exploration, development, and production to use recycled water. EXISTING LAW : 1)Regulates, under DOGGR in the Department of Conservation, the drilling, operation, maintenance, stimulation, and abandonment of oil and gas wells in the state. 2)Requires the owner of an oil and gas well to file with DOGGR a monthly statement that provides certain information related to the well, including what disposition was made of the water produced from each field. 3)Provides that a person who fails to comply with specific laws relating to the regulation of oil or gas operations, including failing to furnish a report or record, is guilty of a misdemeanor. THIS BILL . 1)Makes the following findings and declarations: a) Existing state policy promotes the use of recycled water in industry where feasible. b) Water of previously unsuitable quality may now be used or treated and used in some oil and gas industry processes due to technological advancement. c) Information facilitating an analysis of the water used SB 1281 Page 2 or produced by each well would improve understanding of water use in the state's oil and gas fields. d) In the event of extreme water scarcity, untreated high-quality water should not be used for new oil and gas exploration, development, or production. According to the Department of Water Resources, groundwater resources throughout the state are at historically low levels. 2)Requires DOGGR to annually provide to the State Water Resources Control Board and the California regional water quality control boards an inventory of all unlined oil and gas field sumps. 3)Declares that it is the policy of the state that oil and gas field exploration, development, and production use, or treat and use, water produced through oil field activities and other recycled water to the extent feasible. Encourages the use and reuse of water initially unsuitable for drinking or irrigation purposes. 4)In the event, and for the duration, of a declared state of emergency because of a drought, requires new oil and gas field exploration, development, and production to use recycled water. 5)Prohibits new oil and gas field exploration, development, and production from using water obtained from a groundwater basin that is not managed in accordance with the State Water Plan. 6)For the monthly statement an owner of a well is required to file with DOGGR, requires additional information on water used during oil and gas field activities. FISCAL EFFECT : According to the Senate Appropriations Committee: 1)One-time costs of up to $1.3 and $2.9 million from the Oil, Gas, and Geothermal Administrative Fund (Fund) over a period of one to two years for the expansion of the oil and gas well information reporting system for additional required information. 2)Ongoing costs of $125,000 from the Fund for the management of the expanded data. SB 1281 Page 3 COMMENTS : 1)Author's Statement . California is suffering from one of the worst droughts in the state's recorded history. There is continuing and significant public concern about the amount of water used in oil and gas field exploration, development and production. Much of California's oil and gas production is located in arid parts of the Central Valley and where existing groundwater-particularly groundwater suitable for drinking or irrigation purposes-may be depleted or under threat of depletion. The oil and gas industry has a ready supply of water generated by oil and gas production. On average state-wide, roughly eight barrels of "produced water" of varying quality are produced for every barrel of crude oil. Produced water may be used in lieu of fresh water for at least some oil and gas field processes. These include, for example, enhanced oil recovery operations such as waterflooding. If needed, existing technology is capable of treating produced water to make it suitable for use in oil and gas field operations. Current required water use reporting to the Division of Oil, Gas and Geothermal Resources (DOGGR) does not provide sufficient information to understand the sources and uses of water in the oil and gas fields. It is existing state policy that recycled water, as defined, be used where feasible. SB 1281 seeks to clarify the use of water in the state's oil and gas fields. 2)Recycled Water . There are significant amounts of water co-located with the state's oil and gas fields. The quality of this water can vary considerably from potentially suitable for irrigation to extremely salty. Oil/water separators are used in the oil production process. At least some of the water used in certain enhanced oil recovery operations is likely to return to the surface as produced water. SB 1281 Page 4 In the event of extreme water scarcity, it may be appropriate that new oil and gas exploration, development, and production use recycled water, given the widespread availability of produced water to the oil and gas industry. There is also indication that new advancements are being made throughout the country to recapture, treat, recycle, and reuse water involved in oil and gas production. A report from the California Environmental Resources Evaluation System (CERES) highlighted groundwater depletion in some of the principal areas of oil and gas production in California. Specifically, the report looked at Kern County, which pumped about three-quarters of California's oil from over 40,000 conventional oil wells in 2010. Kern County also has an active agricultural sector with over 800,000 acres of irrigated farmland. Although the county meets demand through surface and groundwater sources, its strong reliance on groundwater pumping over the last several decades has resulted in substantial groundwater declines. In fact, the credit rating firm Moody's recently identified the Kern County Water Agency as being at risk of a credit rating downgrade, reflecting this region's vulnerability to growing water supply challenges. Although the oil and agricultural industries have coexisted for many years in Kern County, elevated water use for hydraulic fracturing in the context of massive drought could alter this course. The CERES states that there are growing concerns that the agriculture section will find it more lucrative to sell their water for oil exploration than growing crops. Limited information is available, but it appears that the oil and gas industry already provides treated produced water of suitable quality for irrigation to at least one water district. Additionally, the oil and gas industry apparently uses produced water as a feedstock for enhanced oil recovery operations. 3)Unlined Sumps . According to the Central Valley Regional Water Board (CVRWB), produced water, which accounts for about 95% of the fluids produced during oil well production (the other 5% is oil), was historically disposed of by discharge to dry stream channels or unlined surface impoundments (sumps). A sump is a surface impoundment or excavated depression used to separate crude oil, water, and solids in oil fields. CVRWB is SB 1281 Page 5 in the process of reviewing unlined sumps in its jurisdiction. It has asked DOGGR for an inventory, which has been at least partially complied with. Many of the sumps are covered by out-of-date waste discharge requirement (WDR) permits, and CVRWB is working to bring these up-to-date, where needed. This bill will require DOGGR to collect information on unlined sumps, which would help CVRWB revise these old WDR permits. REGISTERED SUPPORT / OPPOSITION : Support California League of Conservation Voters Clean Water Action Citizens for Responsible Oil & Gas Earthworks Environmental Working Group League of Women Voters of California Los Padres ForestWatch Mainstreet Moms Mount Shasta Bioregional Ecology Center Natural Resources Defense Council South Monterey County Rural Coalition The Wildlands Conservancy Opposition California Independent Petroleum Association Western States Petroleum Association Analysis Prepared by : Mario DeBernardo / NAT. RES. / (916) 319-2092