BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON NATURAL RESOURCES AND WATER
                             Senator Fran Pavley, Chair
                                2015 - 2016  Regular 

          Bill No:            SB 248          Hearing Date:    April 14,  
          2015
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          |Author:    |Pavley                 |           |                 |
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          |Version:   |April 6, 2015                                        |
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          |Urgency:   |No                     |Fiscal:    |Yes              |
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          |Consultant:|Katharine Moore                                      |
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                                Subject:  Oil and gas


          BACKGROUND AND EXISTING LAW
          1.There are approximately 90,000 active oil and gas wells in the  
            state.  These wells are primarily oil and gas production  
            wells, injection wells used to enhance oil recovery by a  
            variety of methods, oil field wastewater disposal injection  
            wells and gas storage wells, among others.  About half of the  
            state's active oil and gas wells are injection wells of which  
            about 1,500 are waste disposal wells.  As of 2013, California  
            was the third ranked oil producing state by volume and also a  
            significant producer of natural gas.

          2.Primary oil and gas production is when the oil and gas  
            reservoir has sufficient internal pressure that the oil/gas  
            can be produced using only pumping or other artificial lift  
            method. Secondary and tertiary oil and gas production methods,  
            collectively known as Enhanced Oil Recovery (EOR) methods,  
            typically involve the addition of pressure and/or heat via  
            injection well to the hydrocarbon reservoir in order to  
            promote hydrocarbon production.  Primary and EOR-assisted  
            production are used both on and offshore.

          3.Many of California's principal oil and gas fields have been in  
            production for several decades.  As these fields age and  
            become depleted, EOR often must be used to continue  
            production.  In many fields the crude oil is very heavy and  
            also must be produced using EOR.  Approximately 60% of the  







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            state's oil production depends upon EOR.  In contrast,  
            hydraulic fracturing and other well stimulation treatments  
            were responsible for about 25% of the state's oil production  
            according to a recent report.

          4.The Division of Oil, Gas, and Geothermal Resources (division)  
            in the Department of Conservation is the state's oil and gas  
            regulator.  Existing law requires the state's oil and gas  
            supervisor to produce a public annual report containing  
            information about the state's oil and gas production and other  
            related material, as specified.

          5.The division sought and received "primacy" to operate the  
            class II underground injection control (UIC) program from the  
            US Environmental Protection Agency (US EPA) in the early  
            1980s.  The class II UIC program is for oil and gas injection  
            wells.  These include wells used for EOR and waste disposal.   
            Recent revelations (see comments) have revealed long-standing  
            mismanagement of the UIC program by the division.

          6.In 2011, an audit of the division's UIC program was completed  
            by a US EPA contractor.  One of the numerous issues raised by  
            the audit was the need to improve the number and type of  
            inspections by the division.  This is not a problem unique to  
            California - a recent report from the US General Accounting  
            Office on the UIC program of several states, including  
            California, also highlighted the need to systematically  
            improve inspection practices. 

          7.Existing law requires an owner or operator of a well to keep  
            and at specified times file with the division, a careful and  
            accurate log, core record, and history of the drilling of the  
            well.  Existing law and regulation specify what information  
            must be provided.

          8.Existing law also requires monthly reporting to the division  
            of certain oil and gas production, and water source,  
            production, use and disposition information.

          9.It has long been known that disposal of large amounts of waste  
            in deep injection wells is, in some instances, associated with  
            an increase in seismic activity.  In recent years, the boom in  
            hydraulic fracturing of oil and gas wells has led to  
            significant increases in oil and gas wastewater in need of  








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            disposal.  Scientists have reported significant overall  
            increases in seismic activity, particularly in areas with  
            little previous activity, and attributed it to increased use  
            of injection wells for waste disposal.  While most of these  
            earthquakes have been relatively minor, a 2011 magnitude 5.6  
            earthquake in Oklahoma was attributed to waste disposal well  
            injections.

          PROPOSED LAW
          This bill would require the division to review and update its  
          regulations, data management practices and enhance required  
          reporting.  Specifically, this bill would:
                 Require complete reporting of all activities conducted  
               on an oil and gas well,
                 Require injection well regulations to be updated,  
               including the development of "best management practices"  
               for injection wells through a public process with  
               independent expert and stakeholder input,
                 Require injection well regulations be specific to each  
               kind of injection well, as specified, including "full and  
               complete characterization and reporting, including  
               monitoring" of the well,
                 Require existing injection wells to be brought into  
               compliance with the new regulations,
                 Require the reporting of the chemical composition of  
               produced water and any fluids injected into an injection  
               well,
                 Require public participation in the injection well  
               review process,
                 Require the development of an inspection protocol and  
               schedule with reporting on the inspection results,
                 Enhance waste disposal injection well reporting,
                 Require the development and implementation of a new data  
               management system to improve data handling and ensure ready  
               public access to the division's data and actions, as  
               specified, and
                 Add an ongoing requirement that the division review and  
               update its regulations and other requirements at least once  
               every 10 years, as specified, among other provisions.

          ARGUMENTS IN SUPPORT
          According to the author, "in the last few years, the division  
          and its operations have come under increasing scrutiny.  About  
          five years ago, the division starting asking the Legislature for  








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          - and receiving - increased funding and personnel to revamp its  
          injection well program.  The then-supervisor released a draft  
          plan to address deficiencies in that program.  Many of these  
          problems were highlighted in the 2011 EPA audit of the injection  
          well program.  It's now 4 years later, and I have a few more  
          draft plans released by the division.  It's time for legislative  
          action to ensure there is a final plan that gets fully  
          implemented and the division's outdated regulations are revised  
          to reflect advances in oil and gas field technology."

          "The state is in the fourth year of an extreme drought.  We  
          recently found out that over 2,500 injection wells are injecting  
          oil and gas-related wastewater and other fluids into groundwater  
          that, in many instances, others are using for drinking and  
          irrigation water.  The division knew about this issue for years,  
          and did little to resolve it. The division has only shut down a  
          handful of wells while it investigates, putting much needed  
          groundwater at risk.  The division does not know all of the  
          materials and chemicals put into those wells.  How can the  
          division fulfill its regulatory mission to protect the state's  
          groundwater, natural resources and public health and safety, if  
          it doesn't collect information about many oil and gas field  
          operations and depends on regulations it acknowledges are  
          out-of-date?"

          The author continues, "SB 248 seeks to spur reform at the  
          division and specifically within its oil and gas injection well  
          program in order to provide regulatory accountability and public  
          transparency.  The division has repeatedly promised to update  
          these regulations for over 5 years with little apparent  
          progress.  My bill puts a statutory framework in place to  
          require the division to regularly review its practices."

          ARGUMENTS IN OPPOSITION
          None received.

          COMMENTS
           This bill is a work-in-progress  .  This bill seeks to address oil  
          and gas field practices that are, in many instances, poorly  
          defined in statute and regulation, despite being in widespread  
          use.  According to the author's office, stakeholder discussions  
          and additional efforts, including the review of law and  
          regulations in other major oil and gas-producing states,  
          continue.  This includes, for example, developing an appropriate  








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          definition of EOR.  The completion of the independent science  
          study required by SB 4 (Pavley, c. 313, Statutes of 2013) later  
          this year may also inform the bill's language.  The bill also  
          does not yet specify dates that many of the required actions  
          must be completed by.  The committee may wish to direct staff to  
          continue working with the author's office, should the bill pass  
          the committee today.

           March 10, 2015 joint hearing  .  Last month, the Senate Committees  
          on Natural Resources and water and Environmental Quality  
          convened a joint hearing on the implementation of the state's  
          UIC program.  The hearing reviewed the division's  
          acknowledgement of over 2,500 injection wells that were  
          improperly permitted and are currently injecting fluids and oil  
          and gas wastewater into groundwater that may be or is of  
          sufficiently good quality to serve as a source of drinking and  
          irrigation water.  The division, the water boards and the US EPA  
          have agreed upon a plan to assess these wells and bring them  
          into compliance or shut them down over the next two years.  (In  
          the last week, the division has released proposed emergency  
          regulations to codify this plan.)  Hearing materials also  
          document repeated assurances from the division, starting with  
          the FY 2010/11 budget, that injection well regulations would be  
          revised, and other discrepancies between the division's  
          regulations and permitting decisions by its staff.  All of the  
          division's current injection well regulations are over 20 years  
          old, and, in some instances, injection wells are allowed to  
          operate at pressures exceeding that needed to fracture the  
          surrounding formation contrary to regulation.  At the hearing,  
          the division also acknowledged the need to improve its data  
          management and handling practices.

           Existing reporting loophole  .  When hydraulic fracturing of oil  
          and gas wells became of wide-spread concern, legislative  
          requests to the division for additional information revealed  
          that only certain records, such as core logs - which focus on  
          the geologic strata encountered while drilling - were required  
          to be reported.  While requirements for well stimulation  
          treatment data reporting are now in place, this loophole remains  
          for other processes.  For example, a recent white paper prepared  
          by the US Geological Survey in support of the development of  
          model groundwater monitoring criteria required by SB 4 states  
          that the chemicals used routinely in EOR are not reported.









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           SB 4 Independent Science Study  .  The first volume of the study  
          was released in early January 2015.  While focused on well  
          stimulation treatments, this study also described some of the  
          reporting needed to understand related oil and gas field  
          practices.  For example, this included the need to have more  
          detailed information available on wastewater disposal injections  
          in order to investigate whether these injections are associated  
          with seismic activity in the state.  Three later volumes are due  
          by July 2015, and a more thorough assessment of wastewater  
          disposal by injection wells is expected to be included.

           Related legislation
           SB 454 (Allen, 2015) This bill seeks to alter the aquifer  
          exemption process for the UIC program (in the Senate Rules  
          Committee)

          SB 545 (Jackson, 2015) This bill would revise and update  
          division's authority and permitting practices, and reform the  
          handling of confidential wells (before the Senate Natural  
          Resources and Water Committee at this hearing)

          AB 356 (Williams, 2015) This bill would provide for reform of  
          the UIC program with an emphasis on the role of the Water Boards  
          and require groundwater monitoring in the vicinity of UIC wells  
          (before the Assembly Natural Resources Committee)

          SUPPORT
          Association of California Water Agencies 

          OPPOSITION
          None Received
          
                                      -- END --