BILL ANALYSIS
SB 550
Page 1
SENATE THIRD READING
SB 550 (Florez)
As Amended August 20, 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 an operator to
provide the surface rights owner with written notification and
legal documentation of any underlying oil, mineral, or gas
extraction operation agreement to the owner of the subsurface or
mineral rights within 10 days of execution of the agreement. If
the owner of surface property cannot be located or determined,
the operator shall provide notice of that agreement by
publication.
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.
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3)Requires a facility operator to file a spill contingency plan
at the time of initial production or within three months of
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.
5)Establishes the Surface Mining and Reclamation Act of 1975
which was enacted to ensure the continued economic well-being
of the state and to the needs of the society, and that the
reclamation of mined lands is necessary to prevent or minimize
adverse effects on the environment and to protect public
health and safety.
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,
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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.
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.
California ownership of mineral resources was originally granted
to the individuals or organizations that owned the surface. In
this case, property owners had both "surface rights" and
"mineral rights". A property owner has the freedom to sell,
lease, or gift these rights individually or entirely to others.
Subsurface mineral rights typically already include oil and gas
rights because the term minerals encompasses all hydrocarbons.
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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: 0006476