BILL ANALYSIS
Bill No: AB
368
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
AB 368 Author: Skinner
As Amended: May 28, 2009
Hearing Date: June 23, 2009
Consultant: Art Terzakis
SUBJECT
State Lands: oil, gas, and mineral leases
DESCRIPTION
AB 368 makes the following modifications to an existing
provision of law relating to quitclaim or relinquishment of
rights under oil and gas and mineral leases:
1. Prevents a quitclaim of a mining lease from taking
effect until the lessee has completed any required
abandonment of all facilities and any required
reclamation of the lease premises, as approved by the
State Lands Commission (SLC).
2. Provides that the lessee shall be released from all
obligations accruing under the lease upon approval of the
SLC and contingent upon any other agreement between the
lessee and the SLC.
3. Provides that the quitclaim or relinquishment shall not
release the lessee or the lessee's surety from liability
for the breach of an obligation of the lease if the
lessee is in default at the time of the approval, rather
than the filing of the quitclaim or relinquishment.
EXISTING LAW
Existing law grants the State Lands Commission (SLC) the
authority to issue mining leases on state sovereign and
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school lands. The law provides that revenues generated
from leases on sovereign lands are to be deposited into the
General Fund. Revenues generated from school lands are
deposited into the California State Teachers' Retirement
Fund.
Existing law (Public Resources Code Section 6804.1) allows
a state leaseholder at any time to make and file with the
SLC a written quitclaim deed or relinquishment of all
rights under any lease or of any portion of a lease with
the SLC to be released. Existing law provides that such
quitclaim or relinquishment shall be effective as of the
date of its filing, subject to the continued obligation of
the lessee to make payment of all rentals and royalties in
accordance with the applicable lease terms and regulations.
BACKGROUND
Purpose of AB 368: Current law permits a mining lessee to
quitclaim at anytime all or a portion of its mining lease
with the State Lands Commission (SLC). As a result,
according to the author's office, certain mining lessees
quitclaim their leases once production is concluded but
before reclamation is completed in order to release
themselves of their lease obligations, which includes the
obligation to pay rent to the State. The author's office
maintains that reclamation can take years to complete and
the SLC cannot lease these mining lands to other parties
during this period. Thus, the SLC is precluded from
generating revenue from these lands until reclamation is
completed. The State is also put at risk of liability for
personal injuries and property damages because the lessee
would no longer be obligated to maintain insurance and
bonding.
This measure would amend existing law so that a quitclaim
of a mining lease could not become effective until the
lessee completes any required abandonment of all facilities
and any required reclamation of the leased premises as
approved by the SLC. The author's office points out that
the essence of this proposed change in law would be that
mining lessees would have to continue to pay rent before
and during the reclamation process which would bring
additional revenue to the California Teachers' Retirement
Fund and potentially the State's General Fund. Additional
benefits come to the State as a result of the lessee
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continuing to maintain insurance and bonding.
Example of the Current Problem: SLC staff offers the
following as an example of a mining lease that was
quitclaimed before reclamation was completed involving the
lessee "Homestake Mining" and school lands located in Lake
County. Homestake Mining entered into a lease with the SLC
in 1994 and was to pay the State $4,577 in annual rent as
well as a 4% royalty rate, which was to be deposited in the
California Teachers' Retirement System Fund. The lease
also included a provision that would have increased annual
rent to $18,300 on the eleventh year of the lease. In
2002, Homestake Mining quitclaimed its lease pursuant to
Public Resources Code Section 6804.1 despite the fact that
reclamation was not completed. As a result of the
quitclaim, Homestake Mining stopped paying its annual rent
and maintaining insurance and bonding in favor of the
State. Homestake Mining is still going through the
reclamation process which prevents the SLC from leasing the
land to another party.
According to SLC staff, if AB 368 (Skinner) had been
enacted a few years ago, it would have applied to the
Homestake Mining lease, and the California Teachers'
Retirement System Fund would have received $4,577 in 2002
and 2003 and $18,300 a year from 2004 until the end of the
reclamation process.
PRIOR/RELATED LEGISLATION
AB 2165 (Karnette) Chapter 446, Statutes of 2008.
Authorized the SLC to negotiate and execute a contract with
the City of Long Beach and an oil operating contractor that
will provide the contractor with a financial incentive to
explore and develop additional oil reserves in a portion of
the Wilmington oil field.
AB 59 (Elder) Chapter 985, Statutes of 1988. Required that
revenues to the claim of the State of California to school
funds within the Elk Hills Naval Petroleum Reserve be
deposited in the School Land Bank Fund and that interest
earnings therefrom be transmitted to the Teachers'
Retirement Fund and distributed to retirees and
beneficiaries whose allowances are below 75% of original
purchasing power.
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AB 3105 (Stirling) Chapter 879, Statutes of 21984.
Established a School Land Bank Fund to be used for the
acquisition of income-producing property for the benefit of
Teachers' Retirement System supplemental cost-of-living
adjustment (COLA) benefit recipients
SUPPORT: As of June 19, 2009:
California State Lands Commission (sponsor)
American Federation of State, County and Municipal
Employees (AFSCME)
California Retired Teachers Association
California State Teachers' Retirement System
OPPOSE: None on file as of June 19, 2009.
FISCAL COMMITTEE: Senate Appropriations Committee
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