BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 545 (Jackson) - Oil and gas operations
          
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          |Version: April 16, 2015         |Policy Vote: N.R. & W. 6 - 2    |
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          |Urgency: No                     |Mandate: Yes                    |
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          |Hearing Date: May 11, 2015      |Consultant: Marie Liu           |
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          This bill meets the criteria for referral to the Suspense File. 


          Bill  
          Summary:  SB 545 would require that a well operator file a  
          written application to the Division of Oil, Gas, and Geothermal  
          Recovery (DOGGR) before commencing drilling a well, which would  
          be posted on the DOGGR website.


          Fiscal  
          Impact:  Unknown revenue losses in the millions to tens of  
          millions of dollars to the Oil, Gas, and Geothermal  
          Administrative Fund as a result of decreased oil production.


          Background:  DOGGR in the Department of Conservation is the state's oil and  
          gas regulator and is headed by the oil and gas supervisor. The  
          supervisor is generally charged with overseeing the drilling,  
          operation, maintenance, and abandonment of wells, tanks, and  
          other facilities used in oil and gas regulation to prevent  
          damage to life, health, property, and natural resources.  
          Existing law requires the state's oil and gas supervisor to  







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          produce a public annual report containing information about the  
          state's oil and gas production and other related material, as  
          specified.
          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).


          Existing law generally provides that well records filed by the  
          well owners and operators are public. 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.  


          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. 


          Existing law recognizes the existence of the Conservation  
          Committee of California Oil Producers and explicitly recognizes  
          that the committee can lawfully issue recommendations on maximum  
          efficient rates of productions.




          Proposed Law:  








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            This bill would make various changes to DOGGR's authority and  
          practices. Specifically, this bill would:
           Revise the process by which a well owner must obtain approval  
            for well drilling, reworking, deepening, redrilling or  
            plugging so that a permit application replaces the existing  
            notice of intent. The application would be required to  
            demonstrate that the drilling and any method utilized will  
            pose de minimums risk to public health and safety. The  
            application must be approved in writing and the approval and  
            application must be publically available online. 


           Require that the appropriate regional water quality control  
            board be notified of a loss of well and well casing integrity  
            within five days.


           Revise the requirements to obtain and retain confidential well  
            status, as specified, including to require additional  
            information, documentation, and public posting requirements.  
            The total and initial time limits for confidential well status  
            would be reduced.


           Define enhanced oil recovery and confidential wells.


           Revise the supervisor's broad authority to regulated oil and  
            gas field activities.


           Revise the recognition of the Conservation Committee of  
            California Oil Producers.




          Staff  
          Comments:  The administrative changes in this bill largely can  
          be absorbed by DOGGR, including the revisions to the  
          supervisor's broad authority over oil and gas field activities. 
          This bill would replace the current requirement for a well  
          operator to file a notice of intent to drill with an explicit  
          requirement to file an application for approval to commence  








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          drilling. These changes are largely in line with its current  
          practices, or at least what should be their current practices  
          under existing law, with one exception, the requirement that the  
          application demonstrate that the drilling and working of the  
          well will have a de minimis risk to public health and safety.  
          According to DOGGR, this requirement will be virtually  
          impossible to reach, as all drilling will have some impact,  
          though that impact may be minimized and mitigated. Because this  
          bill is establishing a standard that practically cannot be met,  
          the bill is in effect ending all new well drilling and well  
          reworking. Because the state receives fees based on the barrels  
          of oils produced to fund DOGGR's activities, by decreasing the  
          amount of oil that can be produced in the state, this bill will  
          result in tens of millions of dollars of reduced revenues.


          This bill contains a definition of enhanced oil recovery that is  
          similar but different to the definition of that same term in SB  
          248 (Pavley). Staff recommends that the bills be amended so that  
          both bills contain the same definition.




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