BILL NUMBER: SB 550 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JUNE 30, 2010
AMENDED IN ASSEMBLY JUNE 21, 2010
AMENDED IN ASSEMBLY APRIL 8, 2010
AMENDED IN ASSEMBLY AUGUST 31, 2009
AMENDED IN ASSEMBLY AUGUST 17, 2009
AMENDED IN ASSEMBLY JULY 9, 2009
AMENDED IN SENATE MAY 20, 2009
INTRODUCED BY Senator Florez
(Coauthor: Senator Romero)
FEBRUARY 27, 2009
An act to amend Sections 3204, 3205, 3207, and 3270.4 of, and
to add Section 3205.7 to , the Public Resources
Code, relating to natural resources.
LEGISLATIVE COUNSEL'S DIGEST
SB 550, as amended, Florez. Natural resources: oil and gas:
drilling.
Existing
(1) Existing law regulates oil
and gas activities. Existing law requires an operator of an oil and
gas well to file with the State Oil and Gas Supervisor
certain individual indemnity bonds at a
specified amount for wells based on the depth of the well or blanket
indemnity bonds. Existing law requires the bond to ensure that
the operator faithfully complies with regulations governing the
operation of the well .
This bill would require an operator of an oil and gas
operation to have insurance or obtain an indemnity bond in an amount
and kind reasonably expected to secure the costs of cleanup for any
adverse environmental impact that could be expected from the operator'
s drilling activity. The bill would require the insurance or
indemnity bond amount to be at least $10,000,000, and in the case
where the drilling is within 1,000 feet of groundwater, at least
$25,000,000. The bill would also require an operator of an oil and
gas operation to disclose to the owner of surface rights any
agreement between the operator and a drilling company. The bill would
make an operator drilling on farmland responsible for compensating
the landowners for surface damage to crops and other improvements
caused during the drilling increase the amount of the
indemnity bond and would require the supervisor to increase the
indemnity bond amounts under specified conditions. The bill would
require the operator, within 10 days of execution, to provide to the
owner of surface rights written disclosure of any lease or agreement
to drill, operate, maintain, or control a well between the operator
and the owner of subsurface or mineral rights .
(2) Existing law authorizes the termination or cancellation of an
individual or blanket indemnity bond under specified conditions.
This bill would prohibit the supervisor from terminating or
canceling an individual or blanket indemnity bond if the supervisor
determines that significant risk of damage from drilling or
production activities remains. In the alternative, the bill would
authorize the supervisor to require an operator to substitute that
indemnity bond with a life-of-production or life-of-well facility
bond.
(3) Existing law authorizes the supervisor to require a
life-of-well or life-of-production facility bond in a specified
amount from an operator with a history of violating regulations
governing oil and gas wells or that has outstanding liabilities to
the state associated with a well or production facility.
This bill would additionally authorize the supervisor to require a
life-of-well or life-of-production facility bond for drilling or
production activity that may present a significant risk of damage to
natural resources, fish or wildlife, underground or surface water, or
agricultural resources that are not adequately mitigated, as
determined by the supervisor, by any other local, state, or federal
law, regulation, or ordinance.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 3204 of the Public
Resources Code is amended to read:
3204. Any (a) An
operator who, on or after January 1, 1999, engages in the
drilling, redrilling, or deepening, or in any operation
permanently altering the casing, of any a
well shall file with the supervisor an individual indemnity
bond in the specified sum for each well so drilled, redrilled,
deepened, or permanently altered. This sum shall be fifteen
twenty thousand dollars ($15,000)
($20,000) for each well less than 5,000 feet
deep, twenty thirty thousand dollars
($20,000) ($30,000) for each well at
least 5,000 feet but less than 10,000 feet deep, and thirty
forty thousand dollars ($30,000)
($40,000) for each well 10,000 or more feet
deep. The bond shall be filed with the supervisor at the time of the
filing of the notice of intention to perform work on the well, as
provided in Section 3203. The bond shall be executed by the operator,
as principal, and by an authorized surety company, as surety,
conditioned that the principal named in the bond shall faithfully
comply with all the provisions of this chapter, including the
duty to prevent damage to life, health, property, natural resources,
and underground and surface waters, in drilling, redrilling,
deepening, or permanently altering the casing in any well or wells
covered by the bond, and shall secure the state against all losses,
charges, and expenses incurred by it to obtain such compliance by the
principal named in the bond.
The
(b) The conditions of the bond
shall be stated in substantially the following language: "If the
____, the above bounden principal, shall well and truly comply with
all the provisions of Division 3 (commencing with Section 3000) of
the Public Resources Code and shall obey all lawful orders of the
State Oil and Gas Supervisor or the district deputy or deputies,
subject to subsequent appeal as provided in that division, and shall
pay all charges, costs, and expenses incurred by the supervisor or
the district deputy or deputies in respect of the well or wells or
the property or properties of the principal, or assessed against the
well or wells or the property or properties of the principal, in
pursuance of the provisions of that division, then this obligation
shall be void; otherwise, it shall remain in full force and effect."
(c) The supervisor shall increase the indemnity bond amounts
contained in subdivision (a) for either of the following reasons:
(1) The reasonable costs to secure the state against all losses,
charges, and expenses incurred by the state to obtain compliance with
all of the provisions of this chapter by the principal named in the
bond has increased by at least the annual rate of inflation, as
calculated by the Department of Industrial Relations, since January
1, 2011.
(2) The supervisor determines both of the following:
(A) Any of the drilling activities covered by a bond may present a
significant risk of damage to natural resources, fish or wildlife,
underground or surface water, or agricultural resources, including
cultivated crops. Any increased bonding requirement shall be in an
amount reasonably expected to secure the total costs of remediation
or restoration of any of those damages.
(B) The risk is not adequately mitigated, as determined by the
supervisor, by any other local, state, or federal law, regulation, or
ordinance.
SEC. 2. Section 3205 of the Public
Resources Code is amended to read:
3205. Any An operator who engages
in the drilling, redrilling, deepening, or in any
an operation permanently altering the casing, of one or
more wells at any time, may file with the supervisor one blanket
indemnity bond to cover all the operations in any of its wells in the
state in lieu of an individual indemnity bond for each operation as
required by Section 3204. The bond shall be executed by the operator,
as principal, and by an authorized surety company, as surety, and
shall be in substantially the same language and upon the same
conditions as provided in Section 3204, except as to the difference
in the amount. The bond shall be provided in one of the following
amounts, as applicable:
(a) The sum of two three hundred
fifty thirty thousand dollars
($250,000), which ($330,000) that does not
include the bond or fee required in Section 3206. A blanket surety
bond provided prior to January 1, 1999, shall be increased to comply
with this subdivision on or before January 1, 2001. A blanket cash
bond provided prior to January 1, 1999, shall be increased by a
minimum of thirty thousand dollars ($30,000) per year, initially
payable January 1, 2000, and yearly on January 1, thereafter, until
the amount on deposit is sufficient to comply with this subdivision.
(b) The sum of one hundred thirty thousand dollars
($100,000) ($130,000) , which does not
include the bond or fee required in Section 3206, for any operator
having 50 or fewer wells in the state, exclusive of properly
abandoned wells.
(c) The sum of one million three hundred thousand
dollars ($1,000,000), which ($1,300,000)
does include the bond or fee required in Section 3206.
(d) The supervisor shall increase the indemnity bond amounts
contained in subdivision (a) for either of the following reasons:
(1) The reasonable costs to secure the state against all losses,
charges, and expenses incurred by the state to obtain compliance with
all of the provisions of this chapter by the principal named in the
bond has increased by at least the annual rate of inflation, as
calculated by the Department of Industrial Relations, since January
1, 2011.
(2) The supervisor determines both of the following:
(A) Any of the drilling activities covered by a bond may present a
significant risk of damage to natural resources, fish or wildlife,
underground or surface water, or agricultural resources, including
cultivated crops. Any increased bonding requirement shall be in an
amount reasonably expected to secure the total costs of remediation
or restoration of any of those damages.
(B) The risk is not adequately mitigated, as determined by the
supervisor, by any other local, state, or federal law, regulation, or
ordinance.
SEC. 3. Section 3205.7 is added to the
Public Resources Code , to read:
3205.7. An operator shall provide to the owner of surface rights
written disclosure of any lease or agreement to drill, operate,
maintain, or control a well between the operator and the owner of
subsurface or mineral rights within 10 days of the execution of the
lease or agreement.
SEC. 4. Section 3207 of the Public
Resources Code is amended to read:
3207. Any (a) An
individual or blanket indemnity bond issued in compliance with
this chapter may be terminated and canceled and the surety be
relieved of all obligations thereunder when the well or wells covered
by such that bond have been properly
completed or abandoned or another valid bond has been substituted
therefor for that bond . Should the
person who has filed a blanket bond properly complete or abandon a
portion of his or her wells covered by the bond, the bond
may be terminated and canceled and the surety be relieved of all
obligations thereunder under the bond
upon the filing by such that person of
an individual bond for each well which that
is still not producing or which that
he or she is still engaged in drilling, redrilling,
deepening, or permanently altering the casing. Liability as to
individual wells that have been completed or drilled and abandoned
under a blanket bond may also be terminated.
(b) The supervisor shall not terminate or cancel an individual or
blank indemnity bond issued in compliance with this chapter if the
supervisor determines that a significant risk of damage from any
drilling or production activity remains, considering any local,
state, or federal regulatory requirements, to natural resources, fish
or wildlife, underground or surface water, or agricultural
resources, including cultivated crops. Alternatively, the supervisor
may require an operator to substitute an individual or blanket
indemnity bond with a life-of-production or life-of-well facility
bond.
SEC. 5. Section 3270.4 of the Public
Resources Code is amended to read:
3270.4. (a) In addition to the bonding requirements under Article
4 (commencing with Section 3200), for an operator with a history of
violating this chapter or that has outstanding liabilities to the
state associated with a well or production facility, or for any
drilling or production activity that may present a significant risk
of damage to natural resources, fish or wildlife, underground or
surface water, or agricultural resources, including cultivated crops,
and that risk is not adequately mitigated, as determined by the
supervisor, by any other local, state, or federal law, regulation, or
ordinance, the supervisor may require a life-of-well or
life-of-production facility bond in an amount adequate to ensure all
of the following:
(1) The proper plugging and abandonment of each well.
(2) The safe decommissioning of each production facility.
(3) The financing of spill response and incident cleanup.
(4) The remediation or restoration of damage to natural resources,
fish or wildlife, underground or surface water, or agricultural
resources, including cultivated crops.
(b) Upon the failure of an operator to properly plug and abandon a
well, decommission a production facility, or perform the appropriate
spill response and incident cleanup, the supervisor may levy on the
bond to obtain money to pay the cost of the work.
(c) The supervisor may release a life-of-production facility bond
upon the satisfactory decommissioning of a production facility, or
when an operator has provided another valid life-of-production
facility bond.
(d) The supervisor may release a life-of-well bond upon the
satisfactory plugging and abandonment of all wells covered by the
bond or when an operator has provided another valid life-of-well
bond.
(e) Whenever an operator sells, assigns, transfers, conveys,
exchanges, or otherwise disposes to another operator a well or
production facility that is covered by a life-of-well bond or a
life-of-production facility bond, the new operator shall replace the
life-of-well or life-of-production bond, as applicable, and maintain
the new bond for five years before it may be released by the
supervisor.
(f) In lieu of the indemnity bond required by this section, the
supervisor may accept a deposit given pursuant to Article 7
(commencing with Section 995.710) of Chapter 2 of Title 14 of Part 2
of the Code of Civil Procedure, excluding a deposit of money, bearer
bonds, or bearer notes.
(g) The supervisor shall adopt regulations specifying the content,
including the conditions, of the bond or other security instrument
required by this section.
SECTION 1. Section 3205.7 is added to the
Public Resources Code, to read:
3205.7. (a) An operator shall file with the supervisor evidence
of insurance or an indemnity bond in an amount and kind reasonably
expected to secure the total costs of cleanup of any adverse
environmental impact that could be expected to result from drilling,
including the potential for drilling accidents, negligent drilling
activity, or both. The indemnity bond or insurance policy shall be in
an amount of not less than ten million dollars ($10,000,000). In the
case of subsurface drilling within 1,000 feet of groundwater, the
indemnity bond or insurance policy shall be in an amount of not less
than twenty-five million dollars ($25,000,000), and shall
specifically cover damage to groundwater.
(b) An operator shall provide to the owner of surface rights
written disclosure of any agreement between the operator and a
drilling company within 10 days of the execution of the agreement.
(c) In the case of drilling on farmland, an operator shall be
responsible for compensating the landowners for surface damage to
crops and all other improvements caused during the drilling.