BILL ANALYSIS
SB 550
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Date of Hearing: August 4, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 550 (Florez) - As Amended: August 2, 2010
Policy Committee: Natural
ResourcesVote:6-2
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill expands and revises the financial requirements for
onshore oil and gas well operators.
FISCAL EFFECT
Minor ongoing costs in the range of $50,000 to $200,000 to the
Department of Conservation, which already supervises oil and gas
well operations and requires indemnity bonds for them.
SUMMARY (continued)
Specifically, this bill:
1)For the operator of a single well, increases the dollar
amounts of the indemnity bond the operator must file with the
Department of Conservation's (DOC's) Division of Oil, Gas and
Geothermal Resources (DOGGR), as follows, indexed to
inflation:
a) to $20,000 (up from $15,000) for a well less than 5,000
feet deep.
b) to $30,000 (up from $20,000) for a well between 5,001
feet deep and 10,000 feet deep.
c) to $40,000 (up from $30,000) for a well 10,000 feet or
more deep.
2)For the operator of one or more wells, increases the dollar
amounts of the blanket indemnity bonds the operator may file
with DOGGR in lieu of the single well indemnity bond
requirements, as follows:
SB 550
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a) to $330,000 (up from $250,000) if the amount includes
the indemnity bonds required by current law for idle wells.
b) to $130,000 (up from $100,000) for an operator of 50
wells or fewer, if the amount does not include the
indemnity bonds required by current law for idle wells.
c) to $1.3 million (up from $1 million) if the amount
includes the indemnity bonds required by current law for
idle wells.
3)Requires DOGGR to increase the evidence of financial ability
for a drilling operation if the activity presents a
significant risk of damage to natural resources, fish or
wildlife, underground or surface water, or agricultural
resources and the risk is not adequately mitigated by other
local, state or federal laws or regulations. Limits the
financial ability amounts to $5 million per facility or $25
million per facility in extraordinary situations.
4)Requires DOGGR to adopt regulations specifying acceptable
evidence of financial ability.
5)Prevents DOGGR from terminating an indemnity bond or evidence
of financial ability once a well is properly completed or
abandoned if it determines significant risk remains.
6)Allows DOGGR to require "life-of-well" or "life-of-production"
facility bonds, or the operator may instead submit evidence of
financial ability, for well activity that may present a
significant risk of damage.
7)Requires a well operator to provide the surface rights owner
with written notification of any well operation agreement
between the well operator and the owner of the subsurface or
mineral rights within 10 days of the agreement.
COMMENTS
1)Rationale . The author contends existing indemnity bonding
requirements are insufficient to cover potential clean up
costs associated with oil and gas wells, especially the
potential cost resulting after well operation ceases. The
author seeks greater financial assurance for, and increased
communication with, surface rights owners, such as farmers, on
whose land drilling often occurs pursuant to agreements
between well operators and the owners of subsurface or mineral
rights.
SB 550
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2)Background: Oil and Gas Drilling-Overseen, but Underinsured ?
Existing law requires DOGGR to supervise drilling, operation,
maintenance and abandonment of oil and gas wells, production
facilities, and pipelines to prevent damage to life, health,
property, underground and surface waters, and natural
resources, among other things.
In keeping with this authority, a well operator who engages in
drilling must file an individual indemnity bond of $15,000,
$20,000 or $30,000 per well, depending on well depth. Or, in
lieu of an indemnity bond for an individual well, a drilling
operator may file a blanket indemnity bond to cover all
operations in any of its wells in the state. The amount of
the blanket bond may be $100,000, $250,000 or $1,000,000,
depending on the number of wells.
There are provisions in the law to protect the state from
potential bad actors. DOGGR may require an operator with a
history of violating oil and gas laws or that has outstanding
liabilities to secure a "life-of-well" or "life-of-production"
facility bonds, meant to ensure the proper plugging and
abandonment, safe decommission, financing of spill response
and clean-up. There are no requirements for liability
insurance or "financial assurance" (meaning a demonstration of
the ability to pay any damages caused by a worst-case spill)
for onshore drilling. This contrasts with offshore drilling,
for which the State Lands Commission requires bonding that
frequently runs into the millions of dollars. (Both DOGGR and
the commission have jurisdiction over drilling operations in
state waters.)
3)Support . There is no registered support for this bill.
4)Opposition . This bill is opposed by industry groups and the
Department of Conservation, who contend existing bonding
requirements make the additional and increased amounts in this
bill unnecessary.
Analysis Prepared by : Jay Dickenson / APPR. / (916) 319-2081