BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2729|
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THIRD READING
Bill No: AB 2729
Author: Williams (D), Salas (D) and Thurmond (D)
Amended: 8/1/16 in Senate
Vote: 21
SENATE NATURAL RES. & WATER COMMITTEE: 6-2, 6/28/16
AYES: Pavley, Allen, Hertzberg, Hueso, Jackson, Monning
NOES: Stone, Vidak
NO VOTE RECORDED: Wolk
SENATE APPROPRIATIONS COMMITTEE: 6-1, 8/11/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza
NOES: Nielsen
ASSEMBLY FLOOR: 62-14, 6/2/16 - See last page for vote
SUBJECT: Oil and gas: operations
SOURCE: Department of Conservation
DIGEST: This bill substantially revises and reforms the states
idle well requirements with certain other accompanying revisions
to the current law governing oil and gas operations.
ANALYSIS:
Existing law:
1) Establishes the Division of Oil, Gas and Geothermal
Resources (division) as the state's oil and gas regulator.
The division is located in the Department of Conservation, is
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led by the state's oil and gas supervisor (supervisor) and
each geographic district within the division is led by its
respective chief district deputy.
2) Provides the supervisor with 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.
3) Defines certain oil and gas well related terms, as
specified:
a) An active observation well is a well being used for
the sole purpose of gathering reservoir data at least once
every three years.
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.
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.
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.
4) 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:
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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.
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 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.
7) 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.)
8) Requires the operator provide an indemnity bond for each
idle well of varying amounts as described above in (4) or (6)
or for $5,000 per idle well, as specified.
9) 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,
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ii) $250 per idle well
idle between 10 and 15 years, and
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
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) above.
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) above, 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), and
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(6) Eliminate at least
4% of long-term idle wells annually (operators with
more than 250 idle wells).
10)Authorizes the supervisor or district deputy to order the
re-abandonment 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
the re-abandonment, 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.
11)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.
This bill substantially revises and reforms the state's idle
well requirements with certain other accompanying revisions to
the current law governing oil and gas operations. Specifically,
this bill:
1) Revises 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) Provides abandoned underground property, including wells, to
the mineral rights owner when the well operator loses the
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right of removal, as specified.
3) Requires, as of January 1, 2018, 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.
4) Revises, as of January 1, 2018, 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) Revises 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,
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(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:
(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),
and
(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) Revises the well re-abandonment provisions with certain
technical and clarifying amendments including the obligations
of operators or others responsible for well re-abandonment
and re-assigning liability for those whose construction
activities impeded access to a well now requiring
re-abandonment.
7) Revises 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.
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8) Requires, by June 1, 2018, 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) Adds additional clarifying and technical language to
clarify, among other things, the supervisor's authority.
10)Requires, starting on July 1, 2019, the division to report
annually to the Legislature, as specified, on the idle well
program, until this provision sunsets on July 1, 2026.
Background
California is a major U.S. oil and gas producer. The division
has been criticized for focusing on boosting hydrocarbon
recovery at the expense of all else, and a 2011 audit by the US
EPA of the division's Underground Injection Control (UIC)
program found serious problems, including with idle well
management and bonding requirements. More recently, the
division has acknowledged allowing improper permitting practices
for thousands of UIC wells. 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. The Renewal
Plan pledged to take aggressive action to reform the division.
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.
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According to the division, the number of idle wells statewide
continues to increase annually despite fluctuations in oil
prices.
Comments
Renewal Plan implementation. This is one of two Department of
Conservation-sponsored bills in this session that seek to
implement elements of the division's Renewal Plan. The other
bill, AB 2756 (Thurmond, 2016) enhances the division's penalty
and investigative authority and allows penalties to be spent on
environmentally beneficial projects. (AB 2756 is also on the
Senate Floor Third Reading File.)
FISCAL EFFECT: Appropriation: Yes Fiscal
Com.:YesLocal: Yes
According to the Senate Appropriations Committee, projected
costs associated with this bill are $1.5 million in year one
(Oil, Gas, and Geothermal Administrative Fund) to the Department
of Conservation, 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).
SUPPORT: (Verified8/10/16)
Department of Conservation (source)
Azul
Brightline Defense Project
California Coastal Protection Network
California League of Conservation Voters
Center for Environmental Health
Citizens Coalition for a Safe Community
Clean Water Action
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County of Santa Barbara
County of Ventura
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: (Verified8/10/16)
Southwest California Legislative Council
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 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
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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."
ASSEMBLY FLOOR: 62-14, 6/2/16
AYES: Achadjian, Alejo, Arambula, Atkins, Baker, Bloom,
Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chau, Chávez,
Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd, Eggman,
Frazier, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,
Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Roger Hernández,
Holden, Irwin, Jones-Sawyer, Levine, Linder, Lopez, Low,
Maienschein, McCarty, Medina, Mullin, Nazarian, O'Donnell,
Olsen, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark
Stone, Thurmond, Ting, Wagner, Weber, Wilk, Williams, Wood,
Rendon
NOES: Travis Allen, Brough, Beth Gaines, Gallagher, Harper,
Jones, Lackey, Mathis, Mayes, Melendez, Obernolte, Patterson,
Steinorth, Waldron
NO VOTE RECORDED: Bigelow, Chang, Dahle, Kim
Prepared by:Katharine Moore / N.R. & W. / (916) 651-4116
8/15/16 20:22:32
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