BILL ANALYSIS Ó
AB 2729
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Date of Hearing: April 4, 2016
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Das Williams, Chair
AB 2729
(Williams) - As Introduced February 19, 2016
SUBJECT: Oil and gas: operations
SUMMARY: Increases idle oil and gas well fees and indemnity
bonds to provide a disincentive for operators to maintain large
numbers of idle wells.
EXISTING LAW:
1)Requires the state's Oil and Gas Supervisor (Supervisor) to
supervise the drilling, operation, maintenance, and
abandonment of wells and the operation, maintenance, and
removal or abandonment of tanks and facilities attendant to
oil and gas production.
2)Defines "idle well" as any well that has not produced oil or
natural gas or had not been used for injection for six
consecutive months of continuous operation during the last
five or more years.
3)Defines "long-term idle well" as any well that has not
produced oil or natural gas or has not been used for injection
for six consecutive months of continuous operation during the
last 10 or more years.
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4)Requires an operator to file an individual indemnity bond with
the Supervisor to secure the state against all losses,
charges, and expenses for each well drilled, redrilled,
deepened, or permanently altered for the following amounts:
a) $25,000 for each well that is less than 10,000 feet
deep; and,
b) $40,000 for each well that is 10,000 or more feet deep.
5)Requires the bond to be filed at the time of the filing of the
notice of intention to perform work on the well.
6)Allows an operator to file with the Supervisor one blanket
indemnity bond to cover 20 or more wells instead of individual
indemnity bonds. Requires the bond to be the following
amounts:
a) $200,000 for 20 to 50 wells;
b) $400,000 for over 50 wells; and,
c) $2,000,000 for over 20 wells and can include idle wells
(known as a super blanket bond).
7)Requires an operator who has not filed a super blanket bond to
do one of the following:
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a) File with the Supervisor annual fees for the following
amounts:
i) $100 for each idle well that has been idle for less
than 10 years;
ii) $250 for each idle well that has been idle for 10
years or longer, but less than 15 years; and
iii) $500 for each idle well that has been idle for 15
years or longer.
b) Provide an escrow account with $5,000 for each idle well
and fund that account with $500 each year for each idle
well to the Supervisor for plugging and abandoning the
operator's idle wells. File with the Supervisor an
indemnity bond for $5,000 for each idle well.
8)Specifies that the funds in the escrow account may be released
by the Supervisor for wells that have been properly plugged
and abandoned, returned to production or injection, or
converted to an active observation well.
9)Allows any individual or blanket indemnity bond to be
terminated or canceled when the well or wells covered by the
bond have been properly completed (made ready for production)
or abandoned.
10)Prohibits an operator from undertaking any work on a
hazardous well or an idle-deserted well unless the mineral
rights owner consents, in writing, to the work plan.
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THIS BILL:
1)Defines "idle well" as any well that has had six consecutive
months of not producing oil or natural gas or being used for
injection. Specifies that an idle well does not include a
well used to inject or withdraw gas from an underground
storage facility.
2)Defines "long-term idle well" as any well that has been an
idle well for five or more years.
3)Requires that abandoned underground personal property of an
operator becomes the property of the mineral interest owner.
4)Requires an operator to file an individual indemnity bond with
the Supervisor to secure the state against all losses,
charges, and expenses for each well drilled, redrilled,
deepened, or permanently altered, on or after January 1, 2018,
for the following amounts:
a) $50,000 for each well that is less than 10,000 feet
deep; and,
b) $80,000 for each well that is 10,000 or more feet deep.
5)Allows an operator to file one blanket indemnity bond with the
Supervisor to cover 20 or more wells instead of individual
indemnity bonds. Requires, on January 1, 2018, the bond to be
the following amounts:
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a) $400,000 for 20 to 50 wells; and
b) $2,000,000 for over 50 wells.
6)Eliminates, on or after January 1, 2018, the option for an
operator to file a super blanket bond.
7)Requires an operator, on January 1, 2018 and after, to do one
of the following:
a) File with the Supervisor annual fees for the following
amounts:
i) $500 for each idle well that has been idle for less
than 3 years;
ii) $2,000 for each idle well that has been idle for 3
years or longer, but less than 5 years;
iii) $5,000 for each idle well that has been idle for 5
years or longer, but less than 10 years; and,
iv) $10,000 for each idle well that has been idle for 10
years or longer.
b) File a plan with the Supervisor for approval to provide
for the management of all long-term idle wells that
eliminates all long-term idle wells in no more than five
years.
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8)Eliminates, on or after January 1 2018, the option for an
operator to provide an escrow account and indemnity bond to
the Supervisor instead of paying annual fees.
9)Requires, on or after January 1, 2018, a well to be properly
abandoned before an individual or blanket indemnity bond can
be terminated or canceled.
10)Authorizes a party to plug and abandon a hazardous well or a
deserted idle well by obtaining all necessary rights to the
well.
FISCAL EFFECT: Unknown
COMMENTS:
1)Background. DOGGR was created in 1915 to supervise the
drilling, operation, maintenance, and plugging and abandonment
of onshore and offshore oil, gas, and geothermal wells.
California is in the top five oil producing states in the
country and produced over 200 million barrels of oil in 2014.
There has been concern that DOGGR has had too much focus
regulating production practices based on what will increase
hydrocarbon recovery. This focus has been at the cost of
protection of groundwater, occupational safety, and public
health. A 2011 United States Environmental Protection Agency
(US EPA) audit of DOGGR's Underground Injection Control (UIC)
program implementation concluded that DOGGR was misclassifying
underground sources of drinking water and doing an
insufficient job monitoring the UIC program. In addition, the
US EPA audit stated that idle well rules needed to be
strengthened and bonding requirements may not be adequate. In
October 2015, DOGGR released its "Renewal Plan for Oil and Gas
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Regulation," which outlines reforms DOGGR will undertake with
the goal of having "an effective regulatory program that
ensures the protection of public health and the environment in
the oil fields of California." One issue DOGGR has identified
as needing improvement is reducing the large inventory of idle
wells.
2)Idle Wells. California has approximately 20,000 idle oil and
gas wells that have been idle for over five years and would be
classified as long-term idle wells by this bill. The number
of idle wells statewide continues to increase annually despite
fluctuations in oil prices. While operators have legitimate
economic reasons for idling wells in the short term, current
fees and bond requirements provide little incentive to reduce
inventory of idle wells. Of the 20,000 idle wells in
California, 50% have been idle for more than 10 years; nearly
25% have been idle for 25 years or more.
Idle wells can pose a risk to the environment and public
health. Improperly maintained well casings can rust or crack,
allowing contaminants such as uranium, lead, iron, selenium,
sulfates, and radon to enter into freshwater formations.
Improperly maintained wells can also leak methane, a potent
greenhouse gas. Due to groundwater overdraft and other
factors, California is experiencing increased instances of
subsidence, which is the gradual caving in or sinking of an
area of land. The resulting shifts in the earth can cause
well casings to crack or collapse, resulting in contamination
to surrounding areas. Unlike wells being produced, where
operators will likely see changes in production levels if a
leak or damage occurs, leaks or damage to idle wells may go
unnoticed. Testing of wells that are not producing or
injecting is not required until the well officially becomes
idle after five years.
The longer a well remains idle, the more likely it is to be
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deserted by the operator. Leaving idle wells in this state
can threaten the environment and public health, and, if
deserted, present a significant cost for the state to plug and
abandon wells and remediate any environmental damage. Idle
wells often become "orphan wells" in cases where the
responsible party either cannot be identified or is no longer
financially capable of covering the costs of plugging and
abandonment. Orphan wells can deteriorate underground over
time. The state is responsible for plugging and abandoning
orphan wells; DOGGR has already plugged and abandoned over a
1,000 orphan wells. Orphaned wells in Ohio and Texas account
for one fifth of the incidences of oil and gas groundwater
contamination.
3)THIS BILL. According to the DOC:
This bill will create disincentives for operators to maintain
large idle well inventories, will ensure that funds are
available to plug and abandon idle wells in the event that they
are deserted, and will help improve public perception of oil and
gas operations.
Currently, operators are allowed to post super blanket bonds
and avoid all annual fees or escrow account requirements. A
super blanket bond can cover all of an operator's active and
idle wells, and there is no obligation on the operator to
reduce their stock of idle wells. Over 60% of wells are
covered by a super blanket bond. Chevron has a super-blanket
bond that covers 4,422 idle wells. Operators can also get
their bonds terminated after a well is ready for production,
which leaves no bond in place in case the well is never
plugged and abandoned. Lack of incentives for operators to
manage their inventory of idle wells has caused that inventory
to increase over time. If operators leave the state or go
bankrupt, the state could potentially be left with tens of
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millions of dollars in costs plugging and abandoning orphan
wells.
This bill attempts to manage this problem by making it more
costly to leave wells idle for long periods of time and only
allows operators to avoid fees if they develop a plan to
reduce their stock of idle wells. Operators are given one
year after the effective date of the bill to decide whether to
pay increased fees or develop a plan. Plans are required to
be aggressive in reducing the stock of long-term idle wells
and are based on how many long-term idle wells an operator
has. Producers with less than 10 long-term idle wells are
only required to eliminate at least one idle well per year.
Producers with between 101 and 250 long-term idle wells are
required to eliminate at least 60 long-term idle wells per
year. Producers with over 250 long-term idle wells must
eliminate at least 25% of their long-term idle wells each
year. This could lead to thousands of long-term idle wells
being plugged and abandoned each year. This bill will subject
more idle wells to testing requirements to avoid
contamination. The additional revenue generated by the
increased fees in the bill will also reduce the chances of the
state having to spend state funds to plug and abandon wells.
Finally, this bill provides landowners with an option to
properly plug and abandon orphan wells on their property so
they can reclaim the land for other purposes. The bill
excludes wells used to inject or withdraw gas from an
underground storage facility from the idle well definition.
There are wells in underground storage facilities that have
been idle for long periods. However, wells in those
facilities are not used continuously like injection or
production wells. The author and committee may wish to amend
the bill to strike this exclusion and, as the bill moves
forward, work on a separate idle well definition for wells in
underground storage facilities.
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4)Prior/Related Legislation.
AB 1882 (Williams, 2016) requires the State Water Resources
Control Board (SWRCB) or the appropriate regional water quality
control board (RWQCB) to review and concur with any UIC project
subject to review or approval. This bill allows SWRCB or the
appropriate RWQCB to propose additional requirements for a
project, including groundwater monitoring. This bill is
scheduled to be heard by this committee on April 4, 2016.
AB 2756 (Thurmond, 2016) enhances DOGGR's penalty and
investigative authority and allows penalties to be spent on
environmentally beneficial projects. This bill is scheduled to
be heard by this committee on April 4, 2016.
SB 248 (Pavley, 2015) requires DOGGR to review and update its
regulations, data management practices, and enhance required
reporting. This bill prohibits the use of oil sumps after July
1, 2017. This bill also prohibits injection chemicals, unless
DOGGR has complete information about specified properties and
potential groundwater impacts. This bill is in the Assembly
Appropriations Committee.
SB 665 (Wolk, Chapter 315, Statutes of 2013) increased bond
amounts that oil and gas operators are required to file with the
Supervisor when submitting a notice of intention to drill a
well.
AB 1960 (Nava, Chapter 562, Statutes of 2008) substantially
strengthened and clarified DOGGR's authority to regulate oil and
gas production facilities. This bill imposed additional
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requirements on operators to minimize frequency and severity of
oil spills, and authorized DOGGR to impose life-of-well and
life-of-facility bonding on operators under specified
circumstances. This bill also increased maximum penalties that
DOGGR may impose from $5,000 to $25,000 per violation.
5)Double Referral. This bill has been double referred to
Assembly Environmental Safety and Toxic Materials Committee.
REGISTERED SUPPORT / OPPOSITION:
Support
Department of Conservation (sponsor)
Azul
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California Coastal Protection Network
California League of Conservation Voters
Center for Environmental Health
Citizens Coalition for a Safe Community
Clean Water Action
Earthworks
Environmental Defense Center
Environmental Defense Fund
Environmental Working Group
Fresnans Against Fracking
Grassroots Coalition
Natural Resources Defense Council
Santa Barbara County Board of Supervisors
Save the Sespe
Surfrider Foundation
The Wildlands Conservancy
Opposition
California Chamber of Commerce
California Independent Petroleum Association
California Manufacturers & Technology Association
Western States Petroleum Association
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Analysis Prepared by:Michael Jarred / NAT. RES. / (916) 319-2092