BILL ANALYSIS Ó
SENATE COMMITTEE ON NATURAL RESOURCES AND WATER
Senator Fran Pavley, Chair
2015 - 2016 Regular
Bill No: SB 545 Hearing Date: April 14,
2015
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|Author: |Jackson | | |
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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 operations.
BACKGROUND AND EXISTING LAW
1.According to the Division of Oil, Gas and Geothermal Resources
(division), the state's oil and gas regulator, there are
approximately 90,000 active oil and gas wells in the state.
These wells are primarily used for oil and gas production,
injection for enhanced oil recovery (EOR) by a variety of
methods, injection for oil and gas field wastewater disposal,
and gas storage, among others. As of 2013, California was the
#3 oil producing state by volume and in the top 20 for natural
gas.
2.Primary oil/gas production is when the oil/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/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
oil/gas reservoir in order to promote oil/gas production.
3.The division is located in the Department of Conservation.
4.Existing law provides broad authority to the head of the
division - the State Oil and Gas Supervisor (supervisor).
Existing law requires the supervisor to supervise the
drilling, operation, maintenance, and abandonment of oil and
gas wells, as specified, and the operation, maintenance, and
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removal or abandonment of tanks and facilities related to oil
and gas production within an oil and gas field, so as to
prevent damage to life, health, property, and natural
resources; to permit owners and operators of oil wells to
utilize all known methods and practices to increase the
ultimate recovery of hydrocarbons; and to perform these duties
in a manner that encourages the wise development of oil and
gas resources to best meet oil and gas needs in the state.
(Public Resources Code (PRC) §3106).
5.Existing law requires the operator of an oil and gas well to
file a written notice of intention to commence drilling or to
rework a well. It prohibits drilling until the notice is
approved by the supervisor or division district deputy,
although if neither responds in writing within 10 working
days, the notice is deemed approved. The operator has one
year to complete the work described in the notice (PRC §3203).
6.Existing law, the Permit Streamlining Act (act) requires any
public agency that is a lead agency for a development project
to approve or disapprove of a project, as specified. Under
the act, in certain circumstances, the project applicant may
file an action to compel the agency to provide the public
notice or hold the hearing, or both, among other provisions.
(Government Code (GOV) §§65920 et seq.) According to the
Office of Planning and Research, the act requires public
agencies to "follow standardized time limits and procedures
for specified types of land use decisions."
7.Existing law generally provides that well records filed by the
well owners and operators are public records. However,
existing law (PRC §3234) allows the supervisor, upon written
request from a well owner or operator, to keep certain well
records of exploratory or certain other wells confidential for
specified periods of time after the well has been drilled. For
both onshore and offshore wells, the initial confidential
periods of 2 and 5 years, respectively, can be extended up to
another 2 years each, with further extension possible with the
supervisor's approval and subject to certain conditions.
While well record confidentiality practices vary from
state-to-state, the underlying idea is to provide some time
for the owner or operator of the exploratory well to take
competitive advantage of knowledge gained through the risk
taken.
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8.Existing law recognizes the Conservation Committee of the
California Oil and Gas Producers and authorizes it or any
other committee of oil producers to make voluntary
recommendations to the supervisor regarding, among other
things, the maximum efficient rate of production, as defined
(PRC §§3450 - 3451).
PROPOSED LAW
This bill would revise several statutes governing the division's
authority and practices. Specifically this bill would:
Define both EOR methods and confidential wells.
Revise the supervisor's broad authority to regulate oil
and gas field activities in the state and specify that the
supervisor shall administer the division in conformance
with the Permit Streamlining Act.
Revise the process for a well owner or operator to
obtain approval for well drilling, reworking, deepening,
redrilling or plugging, as specified. A permit application
replaces the existing notice of intent, an application must
be approved in writing, and the applications and written
approvals must be posted online, among other provisions.
Delete the requirement that a notice of intent to drill
is deemed approved if the division does not respond in
writing within 10 days.
Require in the event of a loss of well and well casing
integrity that the operator report any resulting action to
the applicable regional water quality control board within
5 days.
Revise the requirements to obtain and retain
confidential well status, as specified, including
additional information, documentation and public posting
requirements. The initial confidential time period for
offshore wells is reduced from 5 years to 3 years. A
single extension of confidential wells status for no more
than 6 months is available.
Delete an obsolete definition, and revamp and add
transparency to the supervisor's interaction with the
Conservation Committee of California Oil and Gas Producers
or any other committee of oil and gas producers, and
recommendations made to the supervisor by these committees,
if any, as specified.
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ARGUMENTS IN SUPPORT
According to the author, "[t]o realize the Governor's 2030
vision of deriving fifty percent of California's electricity
from renewable sources and to reduce the release of pollutants
into the atmosphere, the prime directive of the [division] - the
agency charged with overseeing oil and gas exploration and
production in California - cannot continue to be to increase the
recovery of underground oil and gas as currently stated in law.
This bill reforms the [division] by changing its prime directive
to allow for, and strictly regulate in a transparent fashion,
the judicious exploration and extraction of oil and gas in a
manner that protects public health and the environment."
According to Environmental Working Group, and others writing in
support, "it has come to light over the last several years that
[the division] has been lax in [its] regulation of the oil
drilling industry. In 2011, the Legislature became aware that
[the division] was not regulation fracking or any form of well
stimulation, and it has recently been revealed that the
[division] has been allowing oil companies to inject toxic
wastewater in aquifers that are capable of supporting
agricultural and domestic uses. SB 545 addresses a number of
concerns at [the division] that will help ensure that this
[division] is serving the public and protecting the environment,
while [it] gives oil companies fair and efficient service."
ARGUMENTS IN OPPOSITION
In a late joint letter, Western States Petroleum Association, in
apparent reference to the bill's changes to the supervisor's
authority, states "[a]s amended, SB 545 would fundamentally
alter the primary mission [of the division] by requiring [the
division] to issue permits for virtually all oil field
activities including routine maintenance."
COMMENTS
This bill is a work-in-progress . While EOR is a
well-established set of techniques and is already referred to in
existing statute and regulation, it is not currently defined. A
review of the definition of EOR from multiple sources, including
other oil- and gas-producing states, indicates that the
definition proposed here requires technical and clarifying
revision. The committee may wish to direct staff to continue
working with the author's office, should the bill pass the
committee, to resolve this and other necessary technical and
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clarifying changes, as noted below, in order to achieve the
author's intent.
The supervisor's broad regulatory authority has evolved over
time . In 1915, the supervisor's essential job - the supervision
of the drilling, operation, and maintenance and abandonment of
petroleum and gas wells - was established. The justification
cited for regulating the oil/gas industry in 1915 included
preventing damage to the hydrocarbon reservoir, and protecting
neighboring property owners and the public. In the ensuing
decades, oil/gas exploration and production, and the hazards
associated with it, changed. The law describing the
supervisor's job and justifying the supervisor's authority
evolved to reflect these changes. Protecting groundwater
quality, for example, is now used to justify oil/gas industry
regulation. This bill would continue this evolution. However,
the supervisor is supposed to supervise, not just permit,
oil/gas field activities. The committee may wish to revise the
bill to avoid limiting the supervisor's existing broad authority
to regulate [Amendment 1].
Is it necessary for the supervisor to encourage the "wise use"
of the oil and gas resource ? It does not appear so. Committee
staff was unable to find similar language in the relevant laws
and regulations of other major oil- and gas-producing states,
although the other principal reasons cited to supervise the
development and operation of oil and gas resources were highly
similar.
Implications of the Permit Streamlining Act to the division . As
existing state law, the division is already subject to the act.
In general, the act requires regulators to take certain
permit-related actions, as defined, within set time periods.
This includes actions taken on permits for "development
projects," as defined, by state and local agencies and by lead
and responsible agencies, as applicable, under the California
Environmental Quality Act (CEQA). (As noted below, CEQA is
under the jurisdiction of the Senate Committee on Environmental
Quality and the discussion here is therefore limited.) There
are provisions of the act that the division clearly satisfies -
such as the requirement that a state agency compile and make
available a detailed list of the information required to be
submitted with a permit application.
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It appears that the author's intent, at least in part, is to
substitute the longer period the act allows for the division to
respond to a drilling notice (now permit) than the 10 days in
existing law that the bill would delete. Committee staff have
sought technical assistance in determining whether the current
bill language addresses the author's intent. Clarifying
language may be required later as this is resolved.
Current law appears to allow the division to meet the 10 day
response requirement without approving a notice by responding in
writing that the notice is still under review.
Confidential wells . The supervisor's annual report on the
state's oil and gas operations used to include a public
tabulation of confidential wells. The information provided
included the owner, location and drilling date of the well,
among other non-secret information. Since the release of the
2009 annual report, however, the annual report's tables have
been limited to the specific information required in statute.
Public information regarding confidential wells is still
available from the division upon request. Limited review of the
available historic data suggests that the total number of
confidential wells during the period investigated was generally
in the range of 100 - 150. The existing ability to maintain
confidentiality for up to 4 and 7 years for onshore and offshore
wells, respectively, without public review in California is
relatively generous compared to many other states (6 months, as
specified, in Colorado and Wyoming; 2 years only in Alaska; up
to 3 or 6 years for onshore or offshore wells Texas).
Data management and handling . The division has acknowledged
long-standing well data management and handling issues (see, for
example, testimony at the March 10, 2015 joint hearing of the
Senate Committees on Natural Resources and Water and
Environmental Quality). The additional online posting of well
information required by this bill may help spur needed reform,
and provide more information to the public.
The interaction between the division and the state and regional
water boards . There are at least two Memorandums of Agreement
(MOAs) between the state water board and the state and regional
water boards and the division. While the current interaction
between the state and regional water boards and the division
appears to be good, communication between them, particularly
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under the 1988 MOA related to the Underground Injection Control
(UIC) program, has been inconsistent. This bill's requirement
that the operator notify the appropriate regional board in the
event of a loss of well integrity seeks to ensure that the water
quality regulator is notified in a timely manner of potential
adverse impacts.
Maximum Efficient Rate (MER), as defined, appears to be
obsolete . This bill deletes the definition of Maximum Efficient
Rate and recasts the division's statutory interaction with the
Conservation Committee of California Oil Producers to remove,
among other things, the reference to MER. MER generally means
the maximum rate an oil reservoir can be produced without unduly
impacting total recovery from the reservoir. The two relevant
sections (PRC §§3450 - 3451) were added in the mid-1950s, have
not been revised much since, and are not otherwise referenced in
regulation. While some states may regulate some activities
based upon MER, it does not appear that California does,
although the state does consider the somewhat recast "ultimate
economic recovery" in the context of unitized pools (see 14 CCR
§1720). Additionally, the provisions of PRC §3160b appear to
ensure the concept underlying MER is taken into consideration in
the regulation of oil/gas activities.
This bill is double-referred . The Rules Committee referred this
bill to both the Committee on Natural Resources and Water and to
the Committee on Environmental Quality. Therefore, should this
bill pass this Committee, it will be referred to the Committee
on Environmental Quality, which will consider the issues in this
bill in its jurisdiction (for example, CEQA).
Related legislation
SB 248 (Pavley, 2015) This bill would provide for reform of
DOGGR and its injection well program, including improving public
transparency and regulatory accountability (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)
SB 454 (Allen, 2015) This bill seeks to alter the aquifer
exemption process for the UIC program (in the Senate Rules
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Committee)
SUGGESTED AMENDMENTS
AMENDMENT 1
Revise proposed PRC §3106 to ensure that the supervisor's
existing broad authority to supervise oil/gas field
activities is retained.
SUPPORT
California League of Conservation Voters
Citizens Coalition for a Safe Community
Citizens for Responsible Oil and Gas
Clean Water Action
Earthworks
Environmental Working Group
Grassroots Coalition
League of Women Voters of California
Los Padres ForestWatch
Natural Resources Defense Council
Physicians for Social Responsibility
Save the Sespe
Sierra Club California
The Wildlands Conservancy
OPPOSITION
California Chamber of Commerce
California Independent Petroleum Association
Independent Oil Producers' Agency
Western States Petroleum Association
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