By Mike Flores & Olman Valverde, Esq.

SB 4 Passes – The Last “Fracking” Bill Left Standing

Senate Bill 4 (Sen. Fran Pavley – Moorpark), was passed after multiple amendments by both Houses and signed by Governor Brown. The bill becomes law on January 1, 2014.

SB4 was only hydraulic fracturing bill that survived of the 11 “fracking” bills that were submitted to the California Senate and Assembly.

After much behind-the-scenes negotiations, the bill gives the Division of Oil, Gas and Geothermal Resources (DOGGR) the ability to:

• Define “well stimulation.” The definition will be included in the draft regulations.
• Conduct a statewide environmental impact report for well stimulation similar to what Kern County is currently doing. This means companies will not be required to do separate environmental documents every time they stimulate a well. (The bill stipulates that when Kern County’s EIR is completed, it will suffice as the environmental review for well stimulation in Kern County.)

SB 4 also provides protection for well stimulation against CEQA lawsuits between now and January 1, 2015 while DOGGR is drafting their regulations and conducting their EIR.

The Governor met with representatives from CIPA, WSPA and several large operators in his office for more than two hours the day before the vote. He reiterated his desire for the potential of the Monterey Shale to be harnessed through well stimulation.

The Governor gave assurances that DOGGR will complete the regulations and EIR on the schedule specified in the bill, limiting the ability of opponents of fracking to bring CEQA suits.

In his signing message, Governor Brown said he would seek additional “clarifying amendments” to the legislation, and would direct the California Department of Conservation “to develop an efficient permitting program for well stimulation activities that groups permits together based on factors such as known geologic conditions and environmental impacts, while providing for more particularized review in other situations when necessary.”

According to some experts, California now has the most stringent and farthest-reaching regulations of hydraulic fracturing and other oil and natural gas production technologies anywhere in the country, and probably the world.

Oil and gas industry advocacy groups, WSPA and CIPA, were active participants as legislators and the Governor evaluated SB4 and the other proposals, effectively explaining the technical, economic and environmental issues involved and representing the industry’s interests.

SB 665 Changes Bonding Requirements for Onshore Wells

The California legislature voted to approve Senate Bill 665 by Senator Lois Wolk (Third District). SB 665 updates bonding requirements that have not been changed since 1998.

SB 665 increases the statutory minimum amount for the indemnity bonds that companies engaged in oil and gas drilling in California are required to file with DOGGR. The changes include:

• Blanket bonds for onshore wells increase to $2 million from $1 million, with coverage for idle wells.
• Blanket bonds for offshore wells increase to $1,000,000 from $250,000.
• Bonds for individual oil and gas wells less than 10,000 feet deep increase to $25,000 from $15,000-$20,000.
•  Bonds for individual oil and gas wells 10,000 or more feet deep increase to $40,000 from $30,000.

Originally, Sen. Wolk had sought increases of 500-600%. CIPA opposed the bill and it died on the Assembly floor. After discussions with CIPA, Wolk agreed to increases that were slightly more that the rise in the consumer price index. The new levels will not be increased further unless the legislature acts through new legislation.

DOGGR Releases Statement on SB 4

California Division of Oil, Gas and Geothermal Resources (DOGGR) released the following statement regarding the passage of SB 4 and the implementation of regulations for well stimulation:

DOC Working on Hydraulic Fracturing/Well Stimulation Draft Regulations After Passage of Legislation (Posted 10/10/2013)

“On September 20, Governor Brown signed Senate Bill 4, authored by Senator Pavley The California Department of Conservation and its Division of Oil, Gas, and Geothermal Resources have begun the process of implementing those portions of the bill directed to the Department and Division.

“The draft regulations will benefit from regulatory development that has been in progress at the Department for the last 12 months. In addition to provisions for well integrity testing and monitoring, the regulations will address public disclosure and the other provisions of SB 4. That bill sets a deadline of January 1, 2015 for completion of the regulations, which the Department is well prepared to meet. The new regulations will complement existing rules that require some of the strongest well construction and operation standards in the nation.

“Release of the official draft regulations is likely to occur before the end of the year, and the public will have the opportunity to comment. A notice of proposed rulemaking action will be emailed to everyone who has subscribed to the Listserv (see below), emailed to everyone who has requested paper notice, and will be posted on the Department and Division of Oil, Gas, and Geothermal Resources Web sites.

“There will also be a notice published in the California Regulatory Notice Register. The notice of proposed rulemaking action will specify the length of the public comment period, where to mail/email comments, when and where public comment hearings will be conducted, and who to contact for questions about the rulemaking.

“SB 4 also requires an independent scientific study of well stimulation techniques, including hydraulic fracturing and acid matrix stimulation. The Department is proceeding with scoping and developing the study to raise the level of information available about well stimulation techniques. Additionally, the Department is also beginning the process of conducting the environmental review directed by SB 4. That environmental review will comply with the noticing and comment periods established by the California Environmental Quality Act.

“In addition to provisions for public disclosure and well integrity testing and monitoring, the regulations will address trade secrecy, interagency coordination and the other provisions of SB 4.

“In a separate action, the California State Water Resources Control Board is developing criteria for regional groundwater quality testing and will adopt regulations to ensure groundwater protection in accordance with SB 4.”

BLM Activity

BLM had originally postponed lease sales until October, but the lease sales were put on hold because of the partial federal government shutdown. The lease sales were originally postponed as a result of a lawsuit filed by the Center for Biological Diversity and the Sierra Club. That suit has tentatively been settled and with the end of the shutdown, the lease sales should go forward.

The BLM announced it will prepare an EIS and possibly a new Resource Management Plan for lands available for leasing in Central California.

Also, the BLM will participate in a scientific review to be undertaken as part of a third-party independent assessment of industry practices and the geology of oil and gas basins in California.

Mike Flores, a legislative affairs specialist with Luna & Glushon, serves on the National Board of Directors of the American Association of Professional Landmen (AAPL), where he is a member of AAPL’s Legislative Affairs Committee and the Public Lands Committee. He is a member of Independent Petroleum Association of America (IPAA), the Western States Petroleum Association (WSPA), and the Los Angeles Association of Professional Landmen (LAAPL), where he is the Legislative Affairs Co-Chair, and is a member of the Bakersfield Association of Professional Landmen (BAPL) where he is the Legislative Affairs Chair.

Olman J. Valverde, an oil and gas attorney with Luna & Glushon, is a member of the American Association of Professional Landmen (AAPL) and the Los Angeles Association of Professional Landmen (LAAPL), where he is the Legislative Affairs Co-Chair.  His work includes representing oil companies in connection with purchase and sale of oil properties, title examination related to oil and gas rights, and litigation involving mineral rights and production activities.