California Senate Bill SB550 Amended / Bill

 BILL NUMBER: SB 550AMENDED BILL TEXT 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 Sections 3204, 3205, 3207, and 3270.4 of, and  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   (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  certain   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  require an operator of an oil and gas operation to have insurance or obtain an indemnity bond in an amount and kind reasonably expected to secure the costs of cleanup for any adverse environmental impact that could be expected from the operator' s drilling activity. The bill would require the insurance or indemnity bond amount to be at least $10,000,000, and in the case where the drilling is within 1,000 feet of groundwater, at least $25,000,000. The bill would also require an operator of an oil and gas operation to disclose to the owner of surface rights any agreement between the operator and a drilling company. The bill would make an operator drilling on farmland responsible for compensating the landowners for surface damage to crops and other improvements caused during the drilling   increase the amount of the indemnity bond and would require the supervisor to increase the indemnity bond amounts under specified conditions. The bill would 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 prohibit the supervisor from terminating or canceling an individual or blanket indemnity bond if the supervisor determines that significant risk of damage from drilling or production activities remains. In the alternative, the bill would authorize the supervisor to require an operator to substitute that indemnity bond 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 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, 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. 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.  Any   (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  any   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  fifteen  twenty  thousand dollars  ($15,000)   ($20,000)  for each well less than 5,000 feet deep,  twenty   thirty  thousand dollars  ($20,000)   ($30,000)  for each well at least 5,000 feet but less than 10,000 feet deep, and  thirty   forty  thousand dollars  ($30,000)   ($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,  including the duty to prevent damage to life, health, property, natural resources, and underground and surface waters,  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   (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) The supervisor shall increase the indemnity bond amounts contained in subdivision (a) for either of the following reasons:   (1) The reasonable costs to secure the state against all losses, charges, and expenses incurred by the state to obtain compliance with all of the provisions of this chapter by the principal named in the bond has increased by at least the annual rate of inflation, as calculated by the Department of Industrial Relations, since January 1, 2011.   (2) The supervisor determines both of the following:   (A) Any of the drilling activities covered by a bond may present a significant risk of damage to natural resources, fish or wildlife, underground or surface water, or agricultural resources, including cultivated crops. Any increased bonding requirement shall be in an amount reasonably expected to secure the total costs of remediation or restoration of any of those damages.   (B) The risk is not adequately mitigated, as determined by the supervisor, by any other local, state, or federal law, regulation, or ordinance.   SEC. 2.   Section 3205 of the   Public Resources Code   is amended to read:  3205.  Any   An  operator who engages in the drilling, redrilling, deepening, or in  any   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  two   three  hundred  fifty   thirty  thousand dollars  ($250,000), which   ($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  ($100,000)   ($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  ($1,000,000), which   ($1,300,000) does include the bond or fee required in Section 3206.  (d) The supervisor shall increase the indemnity bond amounts contained in subdivision (a) for either of the following reasons:   (1) The reasonable costs to secure the state against all losses, charges, and expenses incurred by the state to obtain compliance with all of the provisions of this chapter by the principal named in the bond has increased by at least the annual rate of inflation, as calculated by the Department of Industrial Relations, since January 1, 2011.   (2) The supervisor determines both of the following:   (A) Any of the drilling activities covered by a bond may present a significant risk of damage to natural resources, fish or wildlife, underground or surface water, or agricultural resources, including cultivated crops. Any increased bonding requirement shall be in an amount reasonably expected to secure the total costs of remediation or restoration of any of those damages.   (B) The risk is not adequately mitigated, as determined by the supervisor, by any other local, state, or federal law, regulation, or ordinance.   SEC. 3.   Section 3205.7 is added to the   Public Resources Code   , to read:   3205.7. 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.   SEC. 4.   Section 3207 of the   Public Resources Code   is amended to read:  3207.  Any   (a)     An  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   that  bond have been properly completed or abandoned or another valid bond has been substituted  therefor   for that bond  . 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  thereunder   under the bond  upon the filing by  such   that  person of an individual bond for each well  which   that  is still not producing or  which   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 or blank indemnity bond 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, or agricultural resources, including cultivated crops. 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.   SEC. 5.   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, 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.  SECTION 1.   Section 3205.7 is added to the Public Resources Code, to read: 3205.7. (a) An operator shall file with the supervisor evidence of insurance or an indemnity bond in an amount and kind reasonably expected to secure the total costs of cleanup of any adverse environmental impact that could be expected to result from drilling, including the potential for drilling accidents, negligent drilling activity, or both. The indemnity bond or insurance policy shall be in an amount of not less than ten million dollars ($10,000,000). In the case of subsurface drilling within 1,000 feet of groundwater, the indemnity bond or insurance policy shall be in an amount of not less than twenty-five million dollars ($25,000,000), and shall specifically cover damage to groundwater. (b) An operator shall provide to the owner of surface rights written disclosure of any agreement between the operator and a drilling company within 10 days of the execution of the agreement. (c) In the case of drilling on farmland, an operator shall be responsible for compensating the landowners for surface damage to crops and all other improvements caused during the drilling.