BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 972 (Butler) - Oil and gas: hydraulic fracturing: moratorium.
Amended: June 28, 2012 Policy Vote: EQ 5-2
Urgency: No Mandate: No
Hearing Date: August 16, 2012
Consultant: Brendan McCarthy
SUSPENSE FILE.
Bill Summary: AB 972 would prohibit the Division of Oil, Gas,
and Geothermal Resources (the Division) from approving a notice
to commence drilling of an oil or natural gas well for which
hydraulic fracturing will be used, until the Division has
adopted regulations governing hydraulic fracturing.
Fiscal Impact:
One-time costs to the Division of about $115,000 (Oil, Gas,
and Geothermal Administrative Fund) to adopt regulations.
Potential delay in state revenues of up to $9 million due
to the inability to use hydraulic fracturing on tidelands
oil wells owned by the state while the regulations are being
developed.
Potential costs to implement the regulations of about
$1million per year. The exact nature of the regulatory
requirements that would be imposed by the Division under the
bill are unknown, as the bill gives the Division broad
authority to adopt comprehensive regulations. Based on
recent proposals to regulate hydraulic fracturing in the
state, the cost to implement the regulations adopted under
the bill would likely be about $1 million per year (Oil,
Gas, and Geothermal Administrative Fund).
Background: Under current law, operators of oil and gas wells
are regulated by the Division of Oil, Gas, and Geothermal
Resources (the Division), within the Department of Conservation.
Well operators are required to file a notice of intention to
commence drilling with the Division before drilling a new well
and to report specified information periodically to the
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Division. Under federal law, the federal Environmental
Protection Agency sets standards for the injection on liquid
below ground, except for injections used by well operators to
hydraulically fracture rock strata. Under the process of
hydraulic fracturing, well operators pump water and a variety of
chemicals into wells at very high pressure. This causes cracks
to form or grow in the rock strata, allowing more oil or gas to
flow into the well and then to the surface.
Proposed Law: AB 972 would prohibit the Division of Oil, Gas,
and Geothermal Resources from approving a notice to commence
drilling of an oil or natural gas well for which hydraulic
fracturing will be used, until the Division has adopted
regulations governing hydraulic fracturing.
Related Legislation:
SB 1054 (Pavley) would require disclosure to neighbors when
hydraulic fracturing takes place. That bill failed passage
on the Senate Floor.
AB 591 (Wieckowski) requires disclosure of hydraulic
fracturing activities and chemicals used. That bill is on
this committee's Suspense File.
Staff Comments: According to the Administration, the Division is
in the process of developing regulations for hydraulic
fracturing. At this point, those regulations are not public.
Under current law, the public trust doctrine holds that tide and
submerged lands and the beds of lakes, streams, and other
navigable waterways are "public trust lands" held by the state
for the benefit of the people of California. These lands are to
promote the public's interest in water or water-dependent
activities such as commerce, navigation, fisheries,
environmental preservation and recreation. The State Lands
Commission is the steward of the state's public trust lands.
In the Los Angeles/Long Beach harbor area, there are significant
oil reserves located under tidelands. The State Lands Commission
has entered into agreements with oil production companies to
develop those resources. The state and the contracted producer
share the profits from those agreements, with state revenues
being deposited in the General Fund. The Commission indicates
that there are a small number of wells in this area that for
which a technique that could be considered hydraulic fracturing
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is proposed to be used. Thus, it is possible that the operator
of those wells would have to delay their development until the
regulations are developed. The projected revenues to the state
from those wells is about $9 million per year.