BILL ANALYSIS Ó
SENATE COMMITTEE ON NATURAL RESOURCES AND WATER
Senator Fran Pavley, Chair
2015 - 2016 Regular
Bill No: AB 2729 Hearing Date: June 28,
2016
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|Author: |Williams | | |
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|Version: |June 1, 2016 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Katharine Moore |
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Subject: Oil and gas: operations
BACKGROUND AND EXISTING LAW
The Division of Oil, Gas and Geothermal Resources (division) is
the state's oil and gas well regulator and is located in the
Department of Conservation in the Natural Resources Agency. The
division is led by the state's Oil and Gas Supervisor
(supervisor), and the six<1> geographic districts within the
division (Public Resources Code (PRC) §3100) are led by their
respective chief district deputies (PRC §3101).
The supervisor has broad authority to supervise the drilling,
operation, maintenance, and abandonment of oil and gas wells,
among other things, so as to prevent, as far as possible, damage
to life, health, property, and natural resources, and certain
other detrimental impacts (PRC §3106).
California's oil production is typically in the top five for
states in the country and its gas production is similarly in the
top 20. The division has been criticized for focusing on
boosting hydrocarbon recovery at the expense of all else. In
October 2015, the Department of Conservation released a "Renewal
Plan" that proposed efforts to address, in part, outdated
regulations and the division's acknowledged failure to
consistently follow laws, regulations and commitments in at
least some of its programs. A 2011 audit by the US EPA of the
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<1> Currently being operated as four districts.
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division's Underground Injection Control program found serious
problems. The audit noted that idle wells regulations needed to
be strengthened and bonding requirements were inadequate (at
least in part due to the release of bonds once a well was
successfully in production). The Renewal Plan pledged to take
aggressive action to reform the division.
Existing law:
1)Defines certain oil and gas well related terms:
a) An active observation well is a well being used for the
sole purpose of gathering reservoir data at least once
every three years, as specified.
b) An idle well means a well that has not produced oil or
gas or been used to inject fluids for six consecutive
months during the last five or more years, as specified.
c) A long-term idle well is a well that has not produced
oil or gas or been used to inject fluids for six
consecutive months during the last 10 or more years, as
specified.
d) A hazardous well is a well that the supervisor
determines is a potential danger to life, health, or
natural resources and that no operator is responsible for
plugging and abandoning. ("Plugging and abandoning" is when
a well is permanently sealed to certain specifications.)
e) An idle-deserted well is an idle well that has been
deserted and no operator is responsible for plugging and
abandoning.
2)Requires an operator to provide an indemnity bond or certain
substitutes, as specified, to the supervisor prior to
drilling, re-drilling or undertaking any operations that would
permanently alter the casing of a well. An individual
indemnity bond for a well shall be for the following amounts:
a) $25,000 for each well less than 10,000 feet deep, and
b) $40,000 for each well that is more than 10,000 feet
deep.
AB 2729 (Williams) PageC
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3)Requires the bond to be filed at the time of the filing of the
notice of intention to perform work on the well.
4)Allows an operator to file with the supervisor a "blanket"
indemnity bond to provide coverage for 20 or more wells in
lieu of requiring individual indemnity bonds for each well.
The blanket bond amounts are as follows:
a) $200,000 for 20 - 50 wells,
b) $400,000 for 51 or more wells, and
c) $2 million for over 20 wells and including any idle
wells.
5)Provides that any individual or blanket indemnity bond may be
terminated in the event the well or wells covered by such bond
have been properly completed or abandoned, as specified. (A
completed well has been successfully drilled and is ready for
oil and gas production or other oil and gas field operation.)
6)Requires the operator provide an indemnity bond for each idle
well of varying amounts as described above in (2) or (4) or
for $5,000 per idle well, as specified.
7)Establishes certain additional requirements for operators of
idle wells that are not covered by these bonds, as specified.
Operators of these idle wells must comply with one of the
following options:
a) The operator shall pay an annual idle well fee that is
the sum of:
i) $100 per idle well idle less than 10 years,
ii) $250 per idle well idle
between 10 and 15 years,
iii) $500 per idle well idle
for more than 15 years.
b) The operator shall provide an escrow account, as
specified, with $5,000 in it for each idle well. The
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escrow account is limited to certain uses and failure to
provided minimum funding for the account results in the
idle well being subject to the annual fee structure
described in (a).
c) The operator shall provide a plan to the supervisor that
provides for the management and elimination of all
long-term idle wells not covered under (a) or (b), as
specified.
i) The plan shall be for no more than 10 years, as
specified, subject to annual performance review, and the
required rate of long-term idle well removal shall be as
follows:
(1) Eliminate at least
one long-term idle well every two years (operators
with 10 or fewer idle wells),
(2) Eliminate at least
one long-term idle well annually (operators with 11 -
20 idle wells),
(3) Eliminate at least
two long-term idle wells annually (operators with 21 -
50 idle wells),
(4) Eliminate at least
five long-term idle wells annually (operators with 51
- 100 idle wells),
(5) Eliminate at least 10
long-term idle wells annually (operators with 101 -
250 idle wells),
(6) Eliminate at least 4%
of long-term idle wells annually (operators with more
than 250 idle wells).
8)Authorizes the supervisor or district deputy to order the
reabandonment of any previously abandoned well if the
integrity of its abandonment is in question, as specified.
For "deserted" wells, the operator responsible for the
previous plugging and abandonment of wells is responsible for
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the reabandonment, except for certain instances involving
subsequent construction on the property where the abandoned
well is located and that affects the well, as described. In
these instances, the owner of the property would be
responsible unless another responsible party is determined.
9)Does not allow an operator to undertake any work on a
hazardous or idle-deserted well subject to certain conditions
including the consent of the mineral rights owner, as
specified.
PROPOSED LAW
This bill would substantially revise and reform the state's idle
well requirements with certain other accompanying revisions to
the current law governing oil and gas operations. Specifically,
this bill would:
1)Revise the definitions of:
a) Active observation well to include that the data being
collected fills a need, and to require annual summary
reporting of the data to the division, as specified.
b) Idle well to be any well that has not been operated, as
specified, for 24 consecutive months, and excludes wells
used to inject or withdraw gas from underground gas storage
facilities.
c) Long-term idle well to be a well that has been idle for
eight or more years.
2)Provide to the mineral rights owner abandoned underground
property, including wells, when the well operator loses the
right of removal, as specified.
3)As of January 1, 2018, require an indemnity bond for all wells
not satisfactorily plugged and abandoned, not just idle wells.
A properly completed well would not have its indemnity bond
removed or released. All idle wells would be required to
comply with the additional idle well requirements regardless
of the indemnity bond provided, and any party that acquires a
well that has been or will be drilled or re-drilled, as
specified, must also provide an appropriate indemnity bond.
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4)As of January 1, 2018, revise the blanket indemnity bond
amounts as follows:
a) $200,000 for an operator with 50 or fewer wells,
b) $400,000 for an operator with 51 - 500 wells,
c) $2,000,000 for an operator with 501 - 10,000 wells,
d) $3,000,000 for an operator with more than 10,000 wells.
5)Revise the idle well requirements as follows:
a) Prior to January 1, 2018 and in addition to existing
requirements, more frequent plan submittals would be
required, among other things.
b) On or after January 1, 2018 and in addition to existing
requirements:
i) Among other requirements, the idle well fees would
be increased as follows:
(1) $150 for an idle well
idle between 3 - 8 years,
(2) $300 for an idle well
idle between 8 - 15 years,
(3) $750 for an idle well
idle between 15 - 20 years, and
(4) $1,500 for an idle
well idle longer than 20 years.
ii) The escrow option for
idle wells is removed.
iii) The operator shall
submit a plan, as specified, to provide for the
management and elimination of all long-term idle wells,
as specified. The plan shall provide for a certain rate
of long-term idle well elimination as follows:
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(1) Elimination of at
least 4% of long-term idle wells or at least one
annually (operators with 250 or fewer idle wells),
(2) Elimination of at
least 5% of long-term idle wells or at least one
annually (operators with 251 - 1,250 idle wells),
(3) Elimination of at
least 6% of long-term idle wells or at least one
annually (operators with more than 1,250 idle wells).
6)Revise the well reabandonment provisions with certain
technical and clarifying amendments including the obligations
of operators or others responsible for well reabandonment and
re-assigning liability for those whose construction activities
impeded access to a well now requiring reabandonment.
7)Revise the treatment of certain hazardous and idle-deserted
wells to require that a party who plugs and abandons one of
these wells must obtain all necessary rights to the well and
shall be subject to the requirements of operators, as
prescribed.
8)By June 1, 2018, require the division to review, evaluate and
update its regulations pertaining to idle wells including idle
well testing and management requirements, as specified. The
testing schedule shall be determined, in part, by the well's
proximity to an underground source of drinking water, as
specified, and will evaluate the viability of returning
certain long-term idle wells to service.
9)Add additional clarifying and technical language to clarify,
among other things, the supervisor's authority.
ARGUMENTS IN SUPPORT
According to the Department of Conservation, AB 2729 "would
substantially revise how operators manage their idle well
inventories, and increase funds that are available to plug and
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abandon idle wells in the event that they are deserted."
"While operators have legitimate economic reasons for idling
well in the short-term, shortcomings in current policies allow
wells to remain idle for long periods of time (in many cases,
decades). [?] The longer a well remains idle, the more likely it
is to be deserted by the operator."
"Idle wells can pose a risk to surface water, underground
aquifers, air quality, and soil in a variety of ways."
"This bill makes several significant improvements to idle well
policy that will better enable the division to protect public
health and the environment."
ARGUMENTS IN OPPOSITION
Writing in opposition (to a previous version of the bill), the
Southwest California Legislative Council states "AB 2729 would
not improve the idle well environment and, as written, would
actually increase the state's exposure for plugging and
abandonment by encouraging small operators to relinquish their
wells to the state."
"Unfortunately, the bill has substantial costs [?] and would
disincentivize potential investors from redeveloping mature
fields to the benefit of the state, counties and mineral owners.
Idle wells are assets. Often facilities are acquired
specifically because there are idle wells included since
reactivating idle wells are a fraction of the cost of drilling
new wells. If this bill had been in effect in the 1990s,
California in-state production of oil would be a fraction of
what it is today because the idle wells that were successfully
reactivated by independents over the last two decades would have
been lost by premature forced abandonment."
COMMENTS
Report back to the Legislature . Should this bill become law,
the laws and regulations governing the state's idle wells will
be significantly changed. While the division has committed,
with legislative support, to revamp its data handling procedures
and processes, it remains unclear how readily discernible and
available information vital to evaluating the state's idle wells
will be. Therefore, the Committee may wish to require regular
reporting on the status of idle and long-term idle wells in the
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state to the Legislature and institute an ongoing requirement
for data reporting online after the Legislative report has
sunset. [Amendment 1]
Idle wells in California . California has approximately 20,000
idle oil and gas wells. Of these wells, nearly half have been
idle for more than 10 years and almost one quarter have been
idle for 25 years or more. Idle wells can pose a risk to
environmental and public health and safety predominantly by
leaking. Leaks in idle wells are less likely to be noticed as
testing is required infrequently compared to active wells. The
longer a well remains idle, the more likely it will be deserted
by the operator, necessitating efforts by the state to properly
plug and abandon the well.
According to the division, the number of idle wells statewide
continues to increase annually despite fluctuations in oil
prices. Operators may have legitimate economic reasons for
idling wells in the short term and current fee and bond
requirements for idle wells, as well as the cost of plugging and
abandonment for a well, provide limited incentive to reduce the
inventory of idle wells. Texas and Oklahoma report numerous
instances of idle wells resulting in subsurface contamination.
While somewhat out-of-date, between FY 2009/10 through FY
2012/13, the division had to plug and abandon over 680 wells
that were or potentially were hazardous. Of these wells, only
about half of them had any indemnity bonds available to
reimburse the state, and only 80 had sufficient funds available
to cover all of the state's costs.
In April 2016, the division and the State Lands Commission took
action to address poorly maintained idle wells at an offshore
man-made island in north of Ventura. The resolution of this
incident is pending. In September 2015, the division fined an
operator over $250,000 for repeated and ongoing violations of
the idle well plan. Division personnel identified wells of the
operators that clearly had not been operated, but had been
reported to be active.
Recent related legislation
AB 1882 (Williams, 2016) would require the Water Boards, as
specified, to review and concur with any Underground Injection
Control project subject to review or approval, among other
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requirements. (held on the Assembly Appropriations Committee's
Suspense)
AB 2756 (Thurmond, 2016) would enhance the division's penalty
and investigative authority and allows penalties to be spent on
environmentally beneficial projects. (currently before the
Senate Judiciary Committee)
SB 248 (Pavley, 2015) would require the division to review and
update its regulations, data management practices, and enhance
required reporting, among other provisions. (a 2-year bill on
the Assembly Appropriation Committee's suspense file)
SB 665 (Wolk, c. 315, Statutes of 2013) increased bond amounts
that oil and gas operators are required to file when submitting
a notice of intention to drill a well.
AB 1960 (Nava, c. 562, Statutes of 2008) substantially
strengthened and clarified DOGGR's authority to regulate oil and
gas production facilities. This bill imposed additional
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.
SUGGESTED AMENDMENTS
AMENDMENT 1
Add a section to the Public Resources Code:
(a) Notwithstanding Section 10231.5 of the Government
Code, on or before July 1, 2019, and annually thereafter
until July 1, 2026, the supervisor shall, in compliance
with Section 9795 of the Government Code, prepare and
transmit to the Legislature a comprehensive report on the
status of idle and long-term wells for the preceding
calendar year. The report shall include:
(1) a list of all idle and long-term idle wells in the
state by American Petroleum Institute identification number
and indicating the operator, field, and pool.
(2) A list of all wells whose idle or long-term idle status
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changed in the preceding year by American Petroleum
Institute identification number with the disposition and
current status of each well.
(3) A list of orphan wells remaining, the estimated costs
of abandoning those orphan wells, and a timeline for future
orphan well abandonment with a specific schedule of goals.
Idle and long-term idle wells that have become orphan wells
shall be identified in the list. For the purposes of this
report, an orphan well is a well that has no party
responsible for it, leaving the state to plug and abandon
it.
(4) A list of all operators with plans filed with the
supervisor for the management and elimination of all
long-term idle wells, the status of each plan and
information on how to access the plan on the division's
Internet Web site.
(5) A list of all notices of violation, orders issued or
other enforcement actions including penalties assessed
taken to ensure compliance with the state's idle and
long-term idle well requirements.
(6) Any other additional relevant information necessary as
determined the supervisor.
(b) The report shall be made publicly available and an
electronic version shall be available on the division's
Internet Web site. The division shall continue to
regularly provide updated information describing idle and
long-term idle wells on the division's Internet Web site
when the report required pursuant to subdivision (a) is no
longer required.
SUPPORT
Department of Conservation (sponsor)
Azul
Brightline Defense Project
California Coastal Protection Network
California League of Conservation Voters
Center for Environmental Health
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Citizen's Coalition for a Safe Community
Clean Water Action
County of Santa Barbara
Earthworks
Environmental Defense Center
Environmental Defense Fund
Environmental Working Group
Fresnans Against Fracking
Grassroots Coalition
Natural Resources Defense Council
Save the Sespe
Sierra Club California
Surfrider Foundation
The Wildlands Conservancy
OPPOSITION
Southwest California Legislative Council
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