BILL ANALYSIS Ó
AB 2729
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
2729 (Williams, et al.)
As Amended August 1, 2016
Majority vote
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|ASSEMBLY: |62-14 |(June 2, 2016) |SENATE: |30-6 |(August 18, |
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Original Committee Reference: NAT. RES.
SUMMARY: Increases idle oil and gas well fees and blanket
indemnity bonds to provide a disincentive for operators to
maintain large numbers of idle wells. Specifically, this bill:
1)Defines "idle well" as any well that has had 24 consecutive
months of not producing oil, natural gas, or water to be used
in production stimulation, enhanced oil recovery, or reservoir
pressure management. Defines "long-term idle well" as any
well that has been an idle well for eight or more years.
2)Allows an operator to file one blanket indemnity bond with the
state's Oil and Gas Supervisor (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) $200,000 for 20 to 50 wells;
b) $400,000 for 51 to 500 wells,
c) $2,000,000 for 501 to 10,000 wells; and,
d) $3,000,000 for more than 10,000 wells.
3)Eliminates, on or after January 1, 2018, the option for an
operator to file a super blanket bond.
4)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) $150 for each idle well that has been idle for three
years but less than eight years;
ii) $300 for each idle well that has been idle for eight
years or longer, but less than 15 years;
iii) $750 for each idle well that has been idle for five
years or longer, but less than 20 years; and,
iv) $1,500 for each idle well that has been idle for 20
years or longer.
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b) File an idle well management plan with the Supervisor
for approval that eliminates between 4 and 6% of their
long-term idle wells each year.
5)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.
6)Requires, by June 1, 2018, Division of Oil, Gas, and
Geothermal Resources (DOGGR) to review, evaluate, and update
its testing regulations pertaining to idle wells.
The Senate amendments:
1)Increases the number of wells an operator must have to be
required to file a $3 million blanket indemnity bond from
1,500 wells to 10,000 wells.
2)Increases the number of idle wells an operator must have from
1,000 wells to 1,250 wells to be required in their idle well
management plan to eliminate 6% of long-term idle wells each
year.
3)Allows operators to file an idle well management plan prior to
2018.
4)Requires the Supervisor to submit to the Legislature a
comprehensive report on the status of idle and long-term idle
wells each year.
EXISTING LAW:
1)Defines "idle well" as any well that has not produced oil or
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natural gas or had not been used for injection for six
consecutive months of continuous operation during the last
five or more years. 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.
2)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.
3)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).
4)Requires an operator who has not filed a super blanket bond to
do one of the following:
a) File with the Supervisor annual fees for the following
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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.
5)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.
FISCAL EFFECT: According the Senate Appropriations Committee:
1)Fee revenue. According to the Department of Conservation
(Department), 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,
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which will result in significantly less revenue to the
Department. However, because more long-term idle wells will
be plugged in a timely manner, this would also dramatically
minimize the State's liability to plug wells that could
eventually be orphaned.
2)Staff costs. In the first year, DOGGR 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.
COMMENTS: 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.
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
deserted by the operator. Leaving idle wells in this state can
threaten the environment and public health, and, if deserted,
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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.
Analysis Prepared by:
Michael Jarred / NAT. RES. / (916) 319-2092 FN:
0004199