BILL ANALYSIS �
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Date of Hearing: May 7, 2012
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
AB 1966 (Ma) - As Introduced: February 23, 2012
SUBJECT : Natural resources: oil and gas: drilling
SUMMARY : Beginning January 1, 2014, requires an oil and gas
well operator to provide a surface land owner with a 10-day
written notice of intent to enter the surface land owner's
property for the purpose of extracting oil, gas, or minerals.
EXISTING LAW :
1)Requires the Division of Oil, Gas and Geothermal Resources in
the Department of Conservation 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 an owner of mineral rights in real property to give a
written notice to the surface owner prior to the first entry
upon the real property to prospect for, mine, or extract any
mineral. If the mineral rights owner has not complied with
this notice requirement, the surface owner may request a court
to enjoin the prospecting, mining, or extracting operation
until the mineral rights owner has complied.
THIS BILL : Beginning January 1, 2014, requires an operator to
provide a surface land owner with a 10-day written notice of
intent to enter the surface land owner's property for the
purpose of extracting oil, gas, or minerals.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of the Current Bill. According to the Author:
In instances where surface ownership and sub-surface
(mineral) ownership is different, the sub-surface
owner may enter the surface owner's property at any
point after providing an initial notice upon entry at
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the first instance to prospect for or extract any
mineral �citation]. However, the notice �requirement]
is very limited and does not include any specifics
regarding timing. At a minimum, surface owners should
be provided advance notice when well operators plan to
enter the property for purposes of extraction and of
the surface owners' right to remediate contamination
to soil or groundwater. This is critical given the
potential for damage to surface resources, such as
crops, groundwater and worker safety.
This bill requires well operators to provide surface
owner �notice] 10 days prior to entering the surface
owner's property for purposes of extraction of oil,
gas or minerals. The bill also requires the well
operators to provide a copy of the recorded short form
or memorandum of oil, gas, or mineral lease with the
notice. In the event that a surface owner cannot be
located or determined then the well operator can
provide the notice via publication.
2)Previous Legislation. This bill is essentially the same bill
as SB 550 (2010, Florez), which was vetoed by Governor
Schwarzenegger with the following message:
I am returning Senate Bill 550 without my signature.
This bill requires an oil and gas operator to provide
to the surface owner a 10-day written notice of the
intent to enter the surface owner's property for the
purpose of the extraction of underlying oil, gas, or
minerals. This bill also requires the operator to
provide to the surface owner a copy of the applicable
recorded short form or memorandum of oil, gas, or
minerals lease within 10 days prior to entering the
property.
The Department of Conservation (Department) does not
currently resolve mineral rights or surface rights
disputes. But this bill would create an expectation
on the part of the landowner that the Department will
now regulate in this arena. This means that
violations of the provisions of the bill could be
subject to the imposition of penalties by the
Department. In essence, this bill creates a
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regulatory program in search of a problem. These
disputes should be resolved in the courts, not through
the Department's enforcement processes.
For this reason, I am unable to sign this bill.
3)Proposed Purpose of the Bill. The author intends to use this
bill as a vehicle for two separate purposes. The first
purpose is to reinstate a sunsetted fee that was collected
from oil and gas well operators from March 1, 2006 to January
1, 2008 to fund the state's Acute Orphan Well program. The
second purpose is to establish the "Surface Owner Protection
Act of 2012" (the Act), which will, among other things,
require an oil and gas operator to provide just compensation
to a surface estate owner for any personal injury, property
damage, and/or interference arising from the operator's
surface disturbance activities. The author has provided
committee staff with draft language of the Act, which contains
some of the following provisions:
a) Reasonable Accommodation. An operator is required to
conduct oil and gas operations in a manner that
accommodates the surface owner by minimizing intrusion upon
and damage to the surface. Subject to this reasonable
accommodation clause and other provisions of the Act, an
oil and gas operator is not prevented from entering upon
and using the amount of the surface estate reasonable and
necessary to explore for, develop, and produce oil and gas.
b) Notice. An operator, before entering upon the surface
of the land for oil and gas operations, is required to give
the surface owner a written notice of its proposed oil and
gas operations no more than 365 days, or less than 180
days, before commencement of any oil and gas operations on
the land. The notice is required to sufficiently disclose
the plan of work and operations to enable the surface owner
to evaluate the effect of oil and gas operations on the
surface owner's use of the land.
c) Surface Use Agreement. An operator and the surface
owner are required, after the notice of proposed oil and
gas operations has been issued, to attempt good faith
negotiations to reach a surface use agreement for the
protection of the surface resources, reclamation issues,
and payment for damages caused by the oil and gas
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operations.
d) Bonding Requirements. An operator that does not obtain
an executed surface use agreement is required to execute a
bond or guaranty in an amount equal to two times the
damages estimated to occur as a result of the oil and gas
operation or $100,000 per acre of land proposed to be
utilized by the operator for oil and gas operations,
whichever is greater.
e) Damages. An operator is required to fully compensate
the surface owner for damages sustained by the surface
owner for all impacts of the oil and gas operations on the
land.
4)Common Law Regarding Mineral Estate. According to a report
prepared for the Institute for Energy Law of the Center for
American International Law<1> (CAIL's Institute for Energy
Law), most states hold the common law doctrine of mineral
estate dominance. This doctrine is based on the principle
that the mineral estate is the dominant estate and carries the
implied right to use the surface estate for the exploration
and production of minerals. The rationale for the dominance of
the mineral estate over the surface is the notion that a grant
or reservation of minerals would be wholly worthless if the
grantee and reserver could not enter upon the land in order to
explore for and extract the minerals granted or reserved.
Over the years the courts have implied the rights of the
mineral owner very broadly with relatively few limitations.
These limitations generally fall within three areas: (1) that
only so much of the surface be used and in such a manner as is
reasonably necessary for the exploration and production of the
minerals; (2) that the mineral owner must use the surface in a
non-negligent manner; and (3) that the use of the surface must
be made with due regard for the surface estate. More
significant restrictions arise from contract than common law,
in the form of lease provisions and surface use agreements.
Beyond the common law and contract, there are some state laws
that impose additional requirements on the mineral estate's
rights. For example, Section 848 of the California Civil Code
--------------------------
<1> Carroll Martin, Occupied Territory: Competing Land Uses by
the Owners of the Surface and Mineral Estates, 59-14 CAIL Annual
Institute on Oil & Gas Law � 14.02.
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requires the owner of mineral rights to give written notice to
the surface owner prior to the first entry upon the property
to prospect for, mine, or extract any mineral. The notice is
required to inform the surface owner of the extent and
location of the prospecting, mining, or extracting operation,
and the approximate time or times of entry and exit upon the
real property.
5)Surface Damages Statutes. According to CAIL's Institute for
Energy Law report, at least 11 states have passed surface
damages statutes, which generally allow surface owners
compensation for damage to the surface estate resulting from
oil and gas operations, without proof of fault or negligence
on the part of the mineral owner. Instead, a surface owner
only needs to prove the amount of damage (typically, a
decrease in land value) he has sustained as a result of the
operations. In most states, a surface owner is also entitled
to receive compensation for the value of any loss of crops,
livestock, or income from uses of the surface (e.g., hunting
lease) that resulted from the mineral owner's operations.
The Oklahoma Surface Damages Act is one of the most
surface-owner friendly state statutes. In Oklahoma, an
operator cannot enter a site to drill an oil or gas well
unless he first notifies the surface owner in writing of his
intent to drill and includes a description of the expected
drill site and the proposed spud date. Within five days of
the notice, the operator and the surface owner must enter into
good faith negotiations to determine how much the operator
should pay to compensate the surface owner for surface damages
that are expected to result from the proposed drilling. If
the parties agree on an amount in writing, the operator may
then enter the site to drill the well. If they cannot agree,
the operator must post a $25,000 bond and petition the
district court to appoint appraisers to determine an
appropriate amount. The operator must file the petition
before drilling the well. If he fails to timely file the
petition, the operator may have to pay treble damages. Within
20 days of the filing, the operator and the surface owner must
each select one appraiser and have those two appraisers select
a third appraiser to be appointed by the court. The
appraisers must inspect the site, determine the amount of
damage to the surface, make a valuation of the damage,
determine the amount of payment, and submit to the court a
written report documenting their findings. After a hearing on
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the parties' exceptions, the court will adopt, reject, or
amend the appraisers' recommendations and order the operator
to pay a specified amount of money to the surface owner.
Either party may then file a demand for a jury trial. If the
party requesting a jury trial does not recover a verdict that
is more favorable to him than the original award, that party
must pay all court costs and reasonable attorneys' fees
associated with the jury trial.
Some states that have enacted surfaces damages legislation
provide much narrower protection for surface owners than
Oklahoma's law. Arkansas, for example, requires the surface
owner to prove that any damage to the surface estate was
caused by the operator's neglect. In addition, the statutory
protection only extends to damages caused by a spill of crude
oil or produced water. Alaska's law entitles the surface
owner to full payment of all damages to the surface, but that
law only applies to state-owned lands. Similarly, Texas
requires leases of state-owned land to include a provision
requiring compensation for damages to the use and value of the
surface caused by the exploration and production of oil and
gas but does not extend to private leases. The Bureau of Land
Management has bonding and compensation requirements for
lessees and operators of federal mineral estates to protect
owners of surface estates that overlay federally-owned
minerals.
REGISTERED SUPPORT / OPPOSITION :
Support
Bloem Mas Farms
Bloemhof Farms & Harvesting
California Cotton Ginners and Growers Associations
Castle Rock Farms, LLC
Clean Water Action
Fabbri Farming Company, LLC
Farmland Reserve, Inc.
Figueroa Farms
Gardiner Farms
Gold Dust Almond Ranch, LLC
John Romanini Farms
Kern County Farm Bureau
King & Gardiner Farms, LLC
Lester Neufeld & Son
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Neuhouse Farms
Palla Famrs
Renada Farms
RK Farms
Rosedale Ranch
Semitropic Water Storage District
Sierra Land & Farming, LLC
Treehouse California Almonds, LLC
Tres Bros. Ranches
Wasco Real Properties II, LLC
Western Agricultural Processors Association
Wise Farming Concepts, Inc.
9 Individuals
Opposition
California Independent Petroleum Association
Analysis Prepared by : Mario DeBernardo / NAT. RES. / (916)
319-2092