BILL ANALYSIS
SB 550
Page 1
SENATE THIRD READING
SB 550 (Florez)
As Amended August 16, 2010
Majority vote
SENATE VOTE :26-11
NATURAL RESOURCES 6-2 APPROPRIATIONS 12-0
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|Ayes:|Chesbro, Brownley, De |Ayes:|Fuentes, Bradford, |
| |Leon, Hill, Huffman, | |Huffman, Coto, Davis, De |
| |Skinner | |Leon, Gatto, Hall, Norby, |
| | | |Skinner, Solorio, |
| | | |Torlakson, Torrico |
|-----+--------------------------+-----+--------------------------|
|Nays:|Knight, Logue | | |
| | | | |
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SUMMARY : Beginning January 1, 2012, 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.
EXISTING LAW :
1)Requires the Supervisor of the Division of Oil, Gas and
Geothermal Resources (DOGGR) in the Department of Conservation
(Department) to supervise the 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.
2)Requires DOGGR to, by regulation, prescribe minimum facility
maintenance standards for all production facilities in the
state, which may include leak detection, corrosion prevention,
tank inspection, valve maintenance, secondary containment, and
other standards the Supervisor deems important for proper
operation of facilities and to prevent damage to life, health,
property, natural resources, groundwater and surface waters.
3)Requires a facility operator to file a spill contingency plan at
the time of initial production or within three months of
SB 550
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acquiring a production facility.
4)Authorizes the Supervisor to require an operator with a history
of violating relevant oil and gas laws or that has outstanding
liabilities to the state to require a life-of-well or
life-of-production facility bond to ensure the proper plugging
and abandonment, safe decommission, financing of spill response
and clean-up.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, minor absorbable costs, if any, to the Department.
COMMENTS : There is currently no requirement that an oil and gas
exploration company have liability insurance in order to get a
permit from DOGGR to drill. A small bond is required by DOGGR to
cover shut-in costs, but the bonds are not "lifetime of facility"
bonds and, in any case, the amounts are insufficient to cover the
clean-up of a large accident.
This is very important to the surface rights owner in a situation
where the surface and subsurface/mineral rights are owned by
different parties and the mineral rights owner engages in
hydro-carbon exploration (directly or through a lease). If an
accident occurs (spill, explosion, or groundwater contamination)
and the exploration company is insolvent or under-capitalized, the
surface owner could not only suffer impairment of their investment
in the surface, but also be liable for the clean-up costs.
According to the Office of Spill Prevention and Response (OSPR),
there are over twice as many inland oil spills as there are marine
spills, but the state responds to less than one third of all
inland spills reported (It is unclear how many spills were from
oil and gas operations supervised by DOGGR). Recently, spills
have occurred on the central coast and in Suisun Marsh, impacting
water supplies and sensitive marsh ecosystems. In Santa Barbara
County, Greka Oil and Gas reportedly has spilled more than 500,000
gallons of oil and contaminated material since 2002 due to a
failure to adequately maintain its facilities. In 2008 and 2009,
OSPR reported 159 and 105 onshore spills (of 42 gallons or more),
respectively, from oil exploration and production activities most
likely in DOGGR's jurisdiction. Collectively, nearly 590,000 and
270,000 gallons of oil, drill waste, or oily/water mixtures were
spilled, respectively. OSPR data do not indicate whether there
was a clean-up response, if any, or the damage a spill may have
caused.
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The author of this bill is primarily concerned about a scenario in
which surface and subsurface development rights are owned by
different parties (a common occurrence in the San Joaquin Valley)
and the latter party's capacity to shoulder the costs of cleaning
up a spill or compensating a landowner for surface damage should
it go bankrupt or otherwise be unable to pay. In this instance,
the author is concerned that the costs and liability would then
fall to the surface right holder. Additionally, the author is
concerned about multiple cases of drinking water contamination
across the country due to new drilling techniques like hydraulic
fracturing, though it is unclear if the technique is used much in
California.
Since 1939, the Legislature has required well operators to provide
indemnity bonds whenever they drill, redrill, deepen, or otherwise
permanently alter a well. Existing law requires these bonds to
secure the state against any losses or expenses it incurs to bring
an operator into compliance with all applicable drilling laws and
regulations, which include the prevention of damage to life,
health, property, underground and surface waters, and natural
resources. Otherwise, unlike offshore drilling or oil transport
activities, there is no liability insurance or financial assurance
requirement (e.g., a demonstration of the ability to pay any
damages caused by a worst-case spill) for onshore operators.
This bill requires an operator to notify an owner of surface
rights within 10 days of executing any agreement with a drilling
company. Given the bifurcation of surface and sub-surface rights
in certain areas of the state, the author contends that a surface
right owner should at least be notified of such an agreement
considering the potential for damage of drilling operations to
surface resources or groundwater. In certain agreements or leases
obtained by the author, there is no mention of the obligation to
remediate contamination to soil or groundwater. While a surface
right owner may not have any leverage to influence such an
agreement, notification, at a minimum is reasonable.
Analysis Prepared by : Jessica Westbrook / NAT. RES. / (916)
319-2092
FN: 0005939