BILL ANALYSIS Ó
AB 2729
Page 1
Date of Hearing: May 18, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2729 (Williams) - As Amended May 11, 2016
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|Policy |Natural Resources |Vote:|6 - 2 |
|Committee: | | | |
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| |Environmental Safety and Toxic | |4 - 3 |
| |Materials | | |
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Urgency: No State Mandated Local Program: YesReimbursable:
No
SUMMARY:
This bill revises idle oil and gas well requirements, fees and
indemnity bonds imposed by the Division of Oil, Gas and
Geothermal Resources (DOGGR). Specifically, this bill:
1)Defines "idle well" as any well that has had 24 consecutive
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months of not producing oil or natural gas or being used for
injection.
2)Defines "long-term idle well" as any well that has been an
idle well for eight or more years.
3)Requires that abandoned underground personal property of an
operator becomes the property of the mineral interest owner,
as specified.
4)Authorizes an operator to file one blanket indemnity bond with
the Supervisor to cover 20 or more wells in lieu of individual
indemnity bonds. Requires, on January 1, 2018, the blanket
bond to be the following amounts:
a) $200,000 for 50 or fewer wells.
b) $400,000 for 50 to 250 wells; and,
c) $2,000,000 for over 250 wells.
5)Requires an operator, beginning January 1, 2018, to do one of
the following:
a) File with the Supervisor annual fees for the following
amounts:
1. $300 for each idle well that has been idle for less
than 8 years;
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2. $750 for each idle well that has been idle for 8
years or longer, but less than 15 years;
3. $1,500 for each idle well that has been idle for 15
years or longer, but less than 10 years; and,
4. $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 and elimination of all long-term idle
wells, as specified.
6)Requires DOGGR, by June 1, 2018, to review, evaluate and
update as appropriate, regulations pertaining to idle wells.
The update shall include idle well testing requirements and
provide an option for temporary or partial well abandonment in
lieu of testing at the discretion of the supervisor.
FISCAL EFFECT:
1)Fees. Unknown revenue increases resulting from idle well
fees. This bill allows operators to either pay idle well fees
into the Hazardous Idle and Deserted Well Abatement Fund
(HIDWAF) or enter into an idle well management plan. In the
very unlikely scenario that every operator chose to pay fees
that would result in excess of $15 million dollars in revenue
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going into the HIDWAF. Based on conversations with operators,
DOGGR estimates the vast majority of operators will opt for
idle well management plans and the increase to the fund would
likely be approximately $1-$1.5 million dollars.
2)Idle Well Oversight and Regulatory Costs. DOGGR estimates it
will require an additional $1.5 to $2.4 million to implement
the requirements of the bill depending on scope of the future
regulations.
COMMENTS:
1)Purpose. According to the bill sponsor, the Department of
Conservation (DOC), low idle well fees and insufficient
bonding requirements create a significant financial incentive
for operators to idle low performing wells, rather than to
properly plug wells. As a result, an increasing number of
wells remain idle for decades, and are at risk of becoming
orphan wells with no responsible operator.
This bill will to create disincentives for operators to
maintain large idle well inventories and ensure funds are
available to plug and abandon idle wells in the event that
they are deserted.
2)Background. California, one of the top five oil producing
states in the country, produced more than 200 million barrels
of oil in 2014. DOGGR is required to supervise the drilling,
operation, maintenance, plugging and abandonment of onshore
and offshore oil, geothermal and gas wells. This bill focuses
on the cost of the protection of groundwater, occupational
safety, and public health.
3)Idle Wells. California has approximately 20,000 idle oil and
gas wells that have been idle for more than five years. The
number of idle wells continues to increase annually despite
fluctuations in oil prices. While operators have legitimate
economic reasons for idling wells in the short term, current
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fees and bond requirements provide little incentive to reduce
the inventory of idle wells.
Some Idle wells pose a risk to the environment and public
health. Improperly maintained well casings can rust or crack,
allowing contaminants to enter into freshwater formations.
Improperly maintained wells can also leak methane, a potent
greenhouse gas (GHG).
Deserted wells are costly for the state to plug, abandon 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 orphan wells and has already plugged and
abandoned over 1,000 abandoned wells.
Analysis Prepared by:Jennifer Galehouse / APPR. / (916)
319-2081