Bill Text: CA SB550 | 2009-2010 | Regular Session | Amended
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Natural resources: oil and gas: drilling.
Spectrum: Partisan Bill (Democrat 2-0)
Status: (Vetoed) 2010-09-29 - In Senate. To unfinished business. (Veto) [SB550 Detail]
Download: California-2009-SB550-Amended.html
Bill Title: Natural resources: oil and gas: drilling.
Spectrum: Partisan Bill (Democrat 2-0)
Status: (Vetoed) 2010-09-29 - In Senate. To unfinished business. (Veto) [SB550 Detail]
Download: California-2009-SB550-Amended.html
BILL NUMBER: SB 550 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY AUGUST 16, 2010
AMENDED IN ASSEMBLY AUGUST 2, 2010
AMENDED IN ASSEMBLY JUNE 30, 2010
AMENDED IN ASSEMBLY JUNE 21, 2010
AMENDED IN ASSEMBLY APRIL 8, 2010
AMENDED IN ASSEMBLY AUGUST 31, 2009
AMENDED IN ASSEMBLY AUGUST 17, 2009
AMENDED IN ASSEMBLY JULY 9, 2009
AMENDED IN SENATE MAY 20, 2009
INTRODUCED BY Senator Florez
(Coauthor: Senator Romero)
FEBRUARY 27, 2009
An act to amend, add, and repeal Sections 3204, 3205,
3207, and 3270.4 of, and to add Sections 3204.5, 3205.3, and 3205.7
to, the An act to add Section 3205.7 to the
Public Resources Code, relating to natural resources.
LEGISLATIVE COUNSEL'S DIGEST
SB 550, as amended, Florez. Natural resources: oil and gas:
drilling.
Existing law regulates oil and gas activities.
This bill would, commencing January 1, 2012, require the o
perator of an oil and gas well, within 10 days of
execution, to provide to the owner of surface rights written
disclosure of any lease or agreement to drill, operate, maintain, or
control a well between the operator and the owner of subsurface or
mineral rights.
(1) Existing law regulates oil and gas activities. Existing law
requires an operator of an oil and gas well to file with the State
Oil and Gas Supervisor individual indemnity bonds at a specified
amount for wells based on the depth of the well or blanket indemnity
bonds. Existing law requires the bond to ensure that the operator
faithfully complies with regulations governing the operation of the
well.
This bill would, commencing January 1, 2012, increase the amount
of the indemnity bond and would require the supervisor to require
additional evidence of financial ability under specified conditions.
The bill would, commencing January 1, 2012, require the operator,
within 10 days of execution, to provide to the owner of surface
rights written disclosure of any lease or agreement to drill,
operate, maintain, or control a well between the operator and the
owner of subsurface or mineral rights.
(2) Existing law authorizes the termination or cancellation of an
individual or blanket indemnity bond under specified conditions.
This bill would, commencing January 1, 2012, prohibit the
supervisor from terminating or canceling an individual or blanket
indemnity bond, or evidence of financial ability, if the supervisor
determines that significant risk of damage from drilling or
production activities remains. In the alternative, commencing January
1, 2012, the bill would authorize the supervisor to require an
operator to substitute that indemnity bond, or evidence of financial
ability, with a life-of-production or life-of-well facility bond.
(3) Existing law authorizes the supervisor to require a
life-of-well or life-of-production facility bond in a specified
amount from an operator with a history of violating regulations
governing oil and gas wells or that has outstanding liabilities to
the state associated with a well or production facility.
This bill would, commencing January 1, 2012, additionally
authorize the supervisor to require a life-of-well or
life-of-production facility bond for drilling or production activity
that may present a significant risk of damage to natural resources,
fish or wildlife, underground or surface water suitable for potable
or agricultural uses, or agricultural resources that are not
adequately mitigated, as determined by the supervisor, by any other
local, state, or federal law, regulation, or ordinance.
Vote: majority. Appropriation: no. Fiscal committee: yes
no . State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 3204 of the Public Resources
Code is amended to read:
3204. (a) An operator who, on or after January 1, 1999, engages
in the drilling, redrilling, or deepening, or in any operation
permanently altering the casing, of a well shall file with the
supervisor an individual indemnity bond in the specified sum for each
well so drilled, redrilled, deepened, or permanently altered. This
sum shall be twenty thousand dollars ($20,000) for each well less
than 5,000 feet deep, thirty thousand dollars ($30,000) for each well
at least 5,000 feet but less than 10,000 feet deep, and forty
thousand dollars ($40,000) for each well 10,000 or more feet deep.
The bond shall be filed with the supervisor at the time of the filing
of the notice of intention to perform work on the well, as provided
in Section 3203. The bond shall be executed by the operator, as
principal, and by an authorized surety company, as surety,
conditioned that the principal named in the bond shall faithfully
comply with all the provisions of this chapter in drilling,
redrilling, deepening, or permanently altering the casing in any well
or wells covered by the bond, and shall secure the state against all
losses, charges, and expenses incurred by it to obtain such
compliance by the principal named in the bond. The amounts indicated
in this section shall be indexed to inflation, as calculated by the
Department of Finance, since January 1, 2011.
(b) The conditions of the bond shall be stated in substantially
the following language: "If the ____, the above bounden principal,
shall well and truly comply with all the provisions of Division 3
(commencing with Section 3000) of the Public Resources Code and shall
obey all lawful orders of the State Oil and Gas Supervisor or the
district deputy or deputies, subject to subsequent appeal as provided
in that division, and shall pay all charges, costs, and expenses
incurred by the supervisor or the district deputy or deputies in
respect of the well or wells or the property or properties of the
principal, or assessed against the well or wells or the property or
properties of the principal, in pursuance of the provisions of that
division, then this obligation shall be void; otherwise, it shall
remain in full force and effect."
(c) This section shall be inoperative until January 1, 2012, and
on that date shall become operative.
SEC. 2. Section 3204 is added to the Public
Resources Code, to read:
3204. (a) Any operator who, on or after January 1, 1999, engages
in the drilling, redrilling, deepening, or in any operation
permanently altering the casing, of any well shall file with the
supervisor an individual indemnity bond in the specified sum for each
well so drilled, redrilled, deepened, or permanently altered. This
sum shall be fifteen thousand dollars ($15,000) for each well less
than 5,000 feet deep, twenty thousand dollars ($20,000) for each well
at least 5,000 feet but less than 10,000 feet deep, and thirty
thousand dollars ($30,000) for each well 10,000 or more feet deep.
The bond shall be filed with the supervisor at the time of the filing
of the notice of intention to perform work on the well, as provided
in Section 3203. The bond shall be executed by the operator, as
principal, and by an authorized surety company, as surety,
conditioned that the principal named in the bond shall faithfully
comply with all the provisions of this chapter, in drilling,
redrilling, deepening, or permanently altering the casing in any well
or wells covered by the bond, and shall secure the state against all
losses, charges, and expenses incurred by it to obtain such
compliance by the principal named in the bond.
(b) The conditions of the bond shall be stated in substantially
the following language: "If the ____, the above bounden principal,
shall well and truly comply with all the provisions of Division 3
(commencing with Section 3000) of the Public Resources Code and shall
obey all lawful orders of the State Oil and Gas Supervisor or the
district deputy or deputies, subject to subsequent appeal as provided
in that division, and shall pay all charges, costs, and expenses
incurred by the supervisor or the district deputy or deputies in
respect of the well or wells or the property or properties of the
principal, or assessed against the well or wells or the property or
properties of the principal, in pursuance of the provisions of that
division, then this obligation shall be void; otherwise, it shall
remain in full force and effect."
(c) This section shall be operative until January 1, 2012, and on
that date is repealed.
SEC. 3. Section 3204.5 is added to the Public
Resources Code, to read:
3204.5. (a) In addition to the drilling-related bonding
requirements specified in Section 3204, the supervisor shall require
additional evidence of financial ability if the supervisor determines
all of the following:
(1) Any of the drilling activities covered by a drilling-related
bond may present a significant risk of damage to natural resources,
fish or wildlife, or underground or surface water suitable for
potable or agricultural uses or agricultural resources, including
cultivated crops.
(2) The risk is not adequately mitigated, as determined by the
supervisor, by any other local, state, or federal law, regulation, or
ordinance.
(b) (1) Any required increase in the evidence of financial ability
pursuant to subdivision (a) shall be in an amount reasonably
expected to secure the total costs of remediation or restoration of
the damage.
(2) The increased evidence of financial ability shall not exceed
five million dollars ($5,000,000) per facility unless the supervisor
views significant amounts of potable or agricultural groundwater
contamination as a material possibility, in which case the evidence
of financial ability shall not exceed twenty-five million dollars
($25,000,000). These amounts shall be indexed to inflation, as
calculated by the Department of Finance, since January 1, 2011.
(3) For the purpose of this section, a facility shall be defined
to mean all of an operator's activities in a specific oilfield as
determined by the supervisor's determination of official oilfield
administrative boundaries.
(c) Notwithstanding subdivision (a), this section does not
authorize the supervisor to disburse any of the proceeds of the
additional evidence of financial ability to the state or to third
parties. If damage is alleged by the state or a third party against
an operator, the supervisor shall retain the evidence of financial
ability and may take steps to protect the evidence until a settlement
is reached, a court decision has been rendered, or a cleanup by the
operator has occurred.
(d) The finding of significant risk, and the acceptable evidence
of increased financial ability required, as determined by the
supervisor, is appealable pursuant to this article.
(e) The supervisor shall adopt regulations specifying acceptable
evidence of financial ability, including, but not limited to,
escrowed trust funds, escrowed government securities, letters of
credit, pledges of revenue, financial means test guarantees,
liability insurance, or any combination of the above. The evidence of
financial ability shall faithfully comply with this chapter,
including, but not limited to, the duty to prevent damage to life,
health, property, natural resources, and underground and surface
waters. The burden of proving evidence of financial ability shall be
on the operator.
(f) The supervisor shall have the option to review and approve the
use of alternative forms of evidence of financial ability not
specified in subdivision (e) if presented a viable application by an
operator. The burden on providing this evidence shall be on the
operator.
(g) This section shall be inoperative until January 1, 2012, and
on that date shall become operative.
SEC. 4. Section 3205 of the Public Resources
Code is amended to read:
3205. An operator who engages in the drilling, redrilling,
deepening, or in an operation permanently altering the casing, of one
or more wells at any time, may file with the supervisor one blanket
indemnity bond to cover all the operations in any of its wells in the
state in lieu of an individual indemnity bond for each operation as
required by Section 3204. The bond shall be executed by the operator,
as principal, and by an authorized surety company, as surety, and
shall be in substantially the same language and upon the same
conditions as provided in Section 3204, except as to the difference
in the amount. The bond shall be provided in one of the following
amounts, as applicable:
(a) The sum of three hundred thirty thousand dollars ($330,000)
that does not include the bond or fee required in Section 3206. A
blanket surety bond provided prior to January 1, 1999, shall be
increased to comply with this subdivision on or before January 1,
2001. A blanket cash bond provided prior to January 1, 1999, shall be
increased by a minimum of thirty thousand dollars ($30,000) per
year, initially payable January 1, 2000, and yearly on January 1,
thereafter, until the amount on deposit is sufficient to comply with
this subdivision.
(b) The sum of one hundred thirty thousand dollars ($130,000),
which does not include the bond or fee required in Section 3206, for
any operator having 50 or fewer wells in the state, exclusive of
properly abandoned wells.
(c) The sum of one million three hundred thousand dollars
($1,300,000) does include the bond or fee required in Section 3206.
(d) This section shall be inoperative until January 1, 2012, and
on that date shall become operative.
SEC. 5. Section 3205 is added to the Public
Resources Code, to read:
3205. Any operator who engages in the drilling, redrilling,
deepening, or in any operation permanently altering the casing, of
one or more wells at any time, may file with the supervisor one
blanket indemnity bond to cover all the operations in any of its
wells in the state in lieu of an individual indemnity bond for each
operation as required by Section 3204. The bond shall be executed by
the operator, as principal, and by an authorized surety company, as
surety, and shall be in substantially the same language and upon the
same conditions as provided in Section 3204, except as to the
difference in the amount. The bond shall be provided in one of the
following amounts, as applicable:
(a) The sum of two hundred fifty thousand dollars ($250,000),
which does not include the bond or fee required in Section 3206. A
blanket surety bond provided prior to January 1, 1999, shall be
increased to comply with this subdivision on or before January 1,
2001. A blanket cash bond provided prior to January 1, 1999, shall be
increased by a minimum of thirty thousand dollars ($30,000) per
year, initially payable January 1, 2000, and yearly on January 1,
thereafter, until the amount on deposit is sufficient to comply with
this subdivision.
(b) The sum of one hundred thousand dollars ($100,000), which does
not include the bond or fee required in Section 3206, for any
operator having 50 or fewer wells in the state, exclusive of properly
abandoned wells.
(c) The sum of one million dollars ($1,000,000), which does
include the bond or fee required in Section 3206.
(d) This section shall be operative until January 1, 2012, and on
that date is repealed.
SEC. 6. Section 3205.3 is added to the Public
Resources Code, to read:
3205.3. (a) In addition to the drilling-related bonding
requirements specified in Section 3205, the supervisor shall require
additional evidence of financial ability if the supervisor determines
all of the following:
(1) Any of the drilling activities covered by a drilling-related
bond may present a significant risk of damage to natural resources,
fish or wildlife, or underground or surface water suitable for
potable or agricultural uses or agricultural resources, including
cultivated crops.
(2) The risk is not adequately mitigated, as determined by the
supervisor, by any other local, state, or federal law, regulation, or
ordinance.
(b) Any required increase in the evidence of financial ability
pursuant to subdivision (a) shall be in an amount reasonably expected
to secure the total costs of remediation or restoration of the
damage.
(1) The increased evidence of financial ability shall not exceed
five million dollars ($5,000,000) per facility unless the supervisor
views significant amounts of potable or agricultural groundwater
contamination as a material possibility, in which case the evidence
of financial ability shall not exceed twenty-five million dollars
($25,000,000). These amounts shall be indexed to inflation, as
calculated by the Department of Finance, since January 1, 2011.
(2) For the purpose of this section, a facility shall be defined
to mean all of an operator's activities in a specific oilfield as
determined by the supervisor's determination of official oilfield
administrative boundaries.
(c) Notwithstanding subdivision (a), this section does not
authorize the supervisor to disburse any of the proceeds of the
additional evidence of financial ability to the state or to third
parties. If damage is alleged by the state or a third party against
an operator, the supervisor shall retain the evidence of financial
ability and may take steps to protect the evidence until a settlement
is reached, a court decision has been rendered, or a cleanup by the
operator has occurred.
(d) The finding of significant risk, and the acceptable evidence
of increased financial ability required, as determined by the
supervisor, is appealable pursuant to this article.
(e) The supervisor shall adopt regulations specifying acceptable
evidence of financial ability, including, but not limited to,
escrowed trust funds, escrowed government securities, letters of
credit, pledges of revenue, financial means test guarantees,
liability insurance, or any combination of the above. The evidence of
financial ability shall faithfully comply with this chapter,
including, but not limited to, the duty to prevent damage to life,
health, property, natural resources, and underground and surface
waters. The burden of proving evidence of financial ability shall be
on the operator.
(f) The supervisor shall have the option to review and approve the
use of alternative forms of evidence of financial ability not
specified in subdivision (e) if presented a viable application by an
operator. The burden on providing this evidence shall be on the
operator.
(g) This section shall be inoperative until January 1, 2012, and
on that date shall become operative.
SEC. 7. SECTION 1. Section 3205.7 is
added to the Public Resources Code, to read:
3205.7. (a) An operator shall provide to the owner of surface
rights written disclosure of any lease or agreement to drill,
operate, maintain, or control a well between the operator and the
owner of subsurface or mineral rights within 10 days of the execution
of the lease or agreement.
(b) This section shall be inoperative until January 1, 2012, and
on that date shall become operative.
SEC. 8. Section 3207 of the Public Resources
Code is amended to read:
3207. (a) An individual or blanket indemnity bond or evidence of
financial ability issued in compliance with this chapter may be
terminated and canceled and the surety be relieved of all obligations
thereunder when the well or wells covered by that bond or evidence
of financial ability have been properly completed or abandoned or
another valid bond or evidence of financial ability has been
substituted for that bond or evidence of financial ability. Should
the person who has filed a blanket bond properly complete or abandon
a portion of his or her wells covered by the bond, the bond may be
terminated and canceled and the surety be relieved of all obligations
under the bond upon the filing by that person of an individual bond
for each well that is still not producing or that he or she is still
engaged in drilling, redrilling, deepening, or permanently altering
the casing. Liability as to individual wells that have been completed
or drilled and abandoned under a blanket bond may also be
terminated.
(b) The supervisor shall not terminate or cancel an individual
indemnity bond, a blank indemnity bond, or evidence of financial
ability issued in compliance with this chapter if the supervisor
determines that a significant risk of damage from any drilling or
production activity remains, considering any local, state, or federal
regulatory requirements, to natural resources, fish or wildlife,
underground or surface water suitable for potable or agricultural
uses, or agricultural resources, including cultivated crops. The
supervisor shall, if requested by an operator on not more frequent
basis than once annually, determine if a previously determined
significant risk has been reduced to less than a significant level.
Alternatively, the supervisor may require an operator to substitute
an individual or blanket indemnity bond with a life-of-production or
life-of-well facility bond, or the operator, at its discretion, may
submit evidence of financial ability in lieu of the bonds, which
evidence shall be required annually for the life-of-production or the
life-of-well. The burden of providing adequate evidence of financial
ability shall be on the operator.
(c) This section shall be inoperative until January 1, 2012, and
on that date shall become operative.
SEC. 9. Section 3207 is added to the Public
Resources Code, to read:
3207. (a) Any individual or blanket indemnity bond issued in
compliance with this chapter may be terminated and canceled and the
surety be relieved of all obligations thereunder when the well or
wells covered by such bond have been properly completed or abandoned
or another valid bond has been substituted therefor. Should the
person who has filed a blanket bond properly complete or abandon a
portion of his wells covered by the bond, the bond may be terminated
and canceled and the surety be relieved of all obligations thereunder
upon the filing by such person of an individual bond for each well
which is still not producing or which he is still engaged in
drilling, redrilling, deepening, or permanently altering the casing.
Liability as to individual wells that have been completed or drilled
and abandoned under a blanket bond may also be terminated.
(b) This section shall be operative until January 1, 2012, and on
that date is repealed.
SEC. 10. Section 3270.4 of the Public Resources
Code is amended to read:
3270.4. (a) In addition to the bonding requirements under Article
4 (commencing with Section 3200), for an operator with a history of
violating this chapter or that has outstanding liabilities to the
state associated with a well or production facility, or for any
drilling or production activity that may present a significant risk
of damage to natural resources, fish or wildlife, underground or
surface water, or agricultural resources, including cultivated crops,
and that risk is not adequately mitigated, as determined by the
supervisor, by any other local, state, or federal law, regulation, or
ordinance, the supervisor may require a life-of-well or
life-of-production facility bond in an amount adequate to ensure all
of the following:
(1) The proper plugging and abandonment of each well.
(2) The safe decommissioning of each production facility.
(3) The financing of spill response and incident cleanup.
(4) The remediation or restoration of damage to natural resources,
fish or wildlife, underground or surface water suitable for potable
or agricultural uses, or agricultural resources, including cultivated
crops.
(b) Upon the failure of an operator to properly plug and abandon a
well, decommission a production facility, or perform the appropriate
spill response and incident cleanup, the supervisor may levy on the
bond to obtain money to pay the cost of the work.
(c) The supervisor may release a life-of-production facility bond
upon the satisfactory decommissioning of a production facility, or
when an operator has provided another valid life-of-production
facility bond.
(d) The supervisor may release a life-of-well bond upon the
satisfactory plugging and abandonment of all wells covered by the
bond or when an operator has provided another valid life-of-well
bond.
(e) Whenever an operator sells, assigns, transfers, conveys,
exchanges, or otherwise disposes to another operator a well or
production facility that is covered by a life-of-well bond or a
life-of-production facility bond, the new operator shall replace the
life-of-well or life-of-production bond, as applicable, and maintain
the new bond for five years before it may be released by the
supervisor.
(f) In lieu of the indemnity bond required by this section, the
supervisor may accept a deposit given pursuant to Article 7
(commencing with Section 995.710) of Chapter 2 of Title 14 of Part 2
of the Code of Civil Procedure, excluding a deposit of money, bearer
bonds, or bearer notes.
(g) The supervisor shall adopt regulations specifying the content,
including the conditions, of the bond or other security instrument
required by this section.
(h) This section shall be inoperative until January 1, 2012, and
on that date shall become operative.
SEC. 11. Section 3270.4 is added to the Public
Resources Code, to read:
3270.4. (a) In addition to the bonding requirements under Article
4 (commencing with Section 3200), for an operator with a history of
violating this chapter or that has outstanding liabilities to the
state associated with a well or production facility, the supervisor
may require a life-of-well or life-of-production facility bond in an
amount adequate to ensure all of the following:
(1) The proper plugging and abandonment of each well.
(2) The safe decommissioning of each production facility.
(3) The financing of spill response and incident cleanup.
(b) Upon the failure of an operator to properly plug and abandon a
well, decommission a production facility, or perform the appropriate
spill response and incident cleanup, the supervisor may levy on the
bond to obtain money to pay the cost of the work.
(c) The supervisor may release a life-of-production facility bond
upon the satisfactory decommissioning of a production facility, or
when an operator has provided another valid life-of-production
facility bond.
(d) The supervisor may release a life-of-well bond upon the
satisfactory plugging and abandonment of all wells covered by the
bond or when an operator has provided another valid life-of-well
bond.
(e) Whenever an operator sells, assigns, transfers, conveys,
exchanges, or otherwise disposes to another operator a well or
production facility that is covered by a life-of-well bond or a
life-of-production facility bond, the new operator shall replace the
life-of-well or life-of-production bond, as applicable, and maintain
the new bond for five years before it may be released by the
supervisor.
(f) In lieu of the indemnity bond required by this section, the
supervisor may accept a deposit given pursuant to
Article 7 (commencing with Section 995.710)
of Chapter 2 of Title 14 of Part 2 of the Code of Civil Procedure,
excluding a deposit of money, bearer bonds, or bearer notes.
(g) The supervisor shall adopt regulations specifying the content,
including the conditions, of the bond or other security instrument
required by this section.
(h) This section shall be operative until January 1, 2012, and on
that date is repealed.
