BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 2729 (Williams) - Oil and gas: operations
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|Version: June 20, 2016 |Policy Vote: N.R. & W. 6 - 2 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: August 8, 2016 |Consultant: Narisha Bonakdar |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 2729 substantially revises the state's idle well
requirements and makes other substantive changes to statutes
governing oil and gas operations.
Fiscal
Impact:
$1.5 million in year one (Oil, Gas, and Geothermal
Administrative Fund) to the Department of Conservation (DOC),
and up $2.5 annually in subsequent years.
Unknown increase, likely in the millions, in idle well fee
revenue (Hazardous Idle and Deserted Well Abatement Fund).
(See staff comments)
Background:
Oil and Gas Regulation. The Department of Conservation's
Division of Oil, Gas and Geothermal Resources (Division)
regulates the state's oil and gas production.
The Oil and Gas Supervisor (Supervisor) has broad authority to
supervise the drilling, operation, maintenance, and abandonment
of oil and gas wells, among other things, to prevent, as far as
possible, damage to life, health, property, and natural
resources.
A 2011 US EPA audit found several issues with the Division's
Underground Injection Control program. Specifically, its
insufficient idle wells regulations and bonding requirements (at
least in part due to the release of bonds once a well was
successfully in production). In October 2015, the Division
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released a "Renewal Plan" that outlined its plan for addressing
these and other issues. This bill is one of many actions taken
to implement the Renewal Plan.
Idle Wells. 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 public health and the
environment, generally by leaking. Leaks in idle wells are less
likely to be detected because they are tested infrequently
compared to active wells, and don't effect production. The
longer a well remains idle, the more likely it will be deserted
by the operator, potentially leaving the state liable for costly
plugging and abandoning efforts.
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. However, low fees and bond
requirements for idle wells relative to the high cost to plug
and abandon a well, provide little incentive for operators to
reduce the inventory of longer-term idle wells.
Proposed Law: This bill:
1)Defines an idle well as any well that has not been operated
for 24 consecutive months, and excludes wells used to inject
or withdraw gas from underground gas storage facilities.
2)Defines a long-term idle well as a well that has been idle for
eight or more years.
3)Staring on January 1, 2018, makes several changes to
requirements related to idle wells, including:
a) Requires an indemnity bond for all wells and requires
the bond to remain in place until the well is plugged and
abandoned.
b) Increases blanket bond amounts.
c) Removes the escrow guarantee option for idle wells, and
requires an operator to pay a fee per idle well or submit
and adhere to a management plan that reduces their idle
well inventory by a specified percentage each year.
4)Requires a party who plugs and abandons a hazardous or
idle-deserted well to obtain all necessary rights to the well
and subjects them to the requirements of operators.
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5)By June 1, 2018, requires the Division to review, evaluate and
update its regulations pertaining to idle wells including idle
well testing and management requirements.
6)Requires the Supervisor, on or before July 1, 2019 and
annually until July 1, 2026, to provide a report on idle
wells, and requires the report to be made publicly available
on the Division's Internet Web site.
7)Adds additional clarifying and technical language to clarify,
among other things, the supervisor's authority.
Related
Legislation: AB 2756 (Thurmond, 2016) substantially revises the Division of
Oil, Gas and Geothermal Resources' civil penalty structure and
appeals procedures. This bill is pending hearing on the Senate
Floor.
Staff
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.
Fee revenue. According to DOC, the fiscal impact of this bill
would depend upon which option operators select (i.e., idle well
fees or the Management Plan). Assuming the current number of
20,000 idle wells, if all operators elect to pay idle well fees,
idle well fee revenue could increase (at most $15 million over
the first five years). However, implementation of an idle well
Management Plan would yield up to several million dollars in
savings for the operator, depending upon the number of idle
wells in the operation. As such, the Department anticipates
that most operators will opt to implement a Management Plan,
which will result in significantly less revenue to the
Department. However, because more long-term idle wells will be
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plugged in a timely manner, this would also dramatically
minimize the State's liability to plug wells that could
eventually be orphaned.
Staff costs. In the first year, the Division will likely need an
additional $1.5 million to implement the requirements in the
bill and hire additional staff. In subsequent years, the
Division may need up to $2.5 million depending upon the
requirements outlined in the regulations required pursuant to
this bill.
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