BILL ANALYSIS Ó
SB 4
Page 1
SENATE THIRD READING
SB 4 (Pavley and Leno)
As Amended September 3, 2013
Majority vote
SENATE VOTE :28-11
NATURAL RESOURCES 6-3 APPROPRIATIONS 10-5
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|Ayes:|Chesbro, Garcia, |Ayes:|Gatto, Bradford, Ian |
| |Muratsuchi, Skinner, | |Calderon, Campos, Eggman, |
| |Stone, Williams | |Gomez, Hall, Holden, Pan, |
| | | |Quirk |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Grove, Bigelow, Patterson |Nays:|Harkey, Bigelow, |
| | | |Donnelly, Linder, Wagner |
| | | | |
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SUMMARY : Establishes a comprehensive regulatory program for oil
and gas well stimulation treatments (e.g., hydraulic
fracturing), which includes, among other things, a study, the
development of regulations, a permitting process, and public
notification and disclosure. Specifically, this bill :
1)Well Stimulation Treatment . Defines "well stimulation
treatment" as a treatment of a well designed to enhance oil
and gas production or recovery, including hydraulic fracturing
and acid well stimulation treatments, but not including steam
flooding, water flooding, cyclic steaming, routine well
cleanout work, routine well maintenance, bottom hole pressure
surveys, or routine activities that do not affect the
integrity of the well or the formation.
2)Study . On or before January 1, 2015, requires the Secretary
of the Natural Resources Agency to have a comprehensive
independent scientific study conducted on well stimulation
treatments. Requires the scientific study to evaluate the
hazards and risks that well stimulation treatments pose to
natural resources and public, occupational, and environmental
health and safety.
3)Regulations . On or before January 1, 2015, requires the
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Division of Oil, Gas, and Geothermal Resources (DOGGR), in
consultation with the Department of Toxic Substances Control
(DTSC), the State Air Resources Board (ARB), the State Water
Resources Control Board (SWRCB), the Department of Resources
Recycling and Recovery (CalRecycle), and any local air
districts and regional water quality control boards in areas
where well stimulation treatments may occur, to adopt rules
and regulations specific to well stimulation treatments.
Requires these regulations to include: 1) revisions to the
rules and regulations governing construction of wells and well
casings to ensure the integrity of wells, well casings, and
the geologic and hydrologic isolation of the oil and gas
formation during and following well stimulation treatments, 2)
full disclosure of the composition and disposition of well
stimulation fluids, and 3) a provision for the well operator
to provide for baseline and followup water testing upon
request by a nearby property owner.
4)Delineating Regulatory Authority . On or before January 1,
2015, requires DOGGR to enter into formal agreements with
DTSC, ARB, SWRCB, CalRecycle, and any local air districts and
regional water quality control boards in areas where well
stimulation treatments may occur, that clearly delineate
respective authority, responsibility, and notification and
reporting requirements associated with well stimulation
treatments and well stimulation treatment-related activities,
including air and water quality monitoring, in order to
promote regulatory transparency and accountability.
5)Well Stimulation Treatment Permit . Requires the operator of
an oil and gas well who wishes to perform well stimulation
treatments to first apply for a permit with DOGGR to conduct
such treatments. Requires the permit to include the well
identification number and location; the time period during
which the treatment is planned to occur; a water management
plan regarding water quantity, source, and disposal; specific
information related to the chemicals used in the treatment;
the planned location of the treatment on the well bore; the
estimated length, height, and direction of the induced
fractures; the location of existing wells, including plugged
and abandoned wells, that may be impacted; a ground water
monitoring plan; and the estimated amount of
treatment-generated waste material and an identified disposal
method for the waste materials. Requires the permit to expire
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one year from the date of issuance.
6)Pre-Well Stimulation Treatment Notification .
a) Within five business days of issuing a permit to perform
a well stimulation treatment, requires DOGGR to provide a
copy of the permit to the appropriate regional water
quality control board(s) and to the local planning entity
where the well, including the subsurface portion, is
located.
b) Within five business days of issuing a permit to perform
a well stimulation treatment, requires DOGGR to post the
permit on a publicly accessible portion of its Internet Web
site.
c) Requires DOGGR to provide a copy of the approved well
stimulation permit and information on the available water
sampling and testing (described in 7) below) to every
tenant of the surface property and every surface property
owner whose property line location is within a 1,500 foot
radius of the wellhead or within 500 feet from the
horizontal projection of all subsurface portions of the
designated well to the surface. Allows well stimulation
treatment to commence 30 days after the permit copies are
provided to the appropriate surface property tenants and
owners.
d) Requires the operator of the oil and gas well to provide
DOGGR at least 72 hours' notice prior to the actual start
of the well stimulation treatment in order for DOGGR to
witness the treatment.
7)Water Quality Sampling . Allows a property owner who receives
a well stimulation treatment notice to request water quality
sampling and testing from a qualified contractor designated by
the regional water quality control board. Requires the well
owner or operator to pay for this sampling and testing.
8)Post-Well Stimulation Treatment Disclosure . Within 60 days
after the cessation of well stimulation treatment, requires
the operator of the oil and gas well to post to an Internet
Web site designated or maintained by DOGGR and accessible to
the public, all of the well stimulation fluid composition and
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disposition information required to be collected, including
well identification number, well location, and collected water
quality data. Requires DOGGR to have its Internet Web site
operational on or before January 1, 2016. Requires DOGGR's
Internet Web site to organize the reported information in a
format, such as a spreadsheet, that allows the public to
easily search and aggregate each type of information required.
Authorizes DOGGR to direct reporting to fracfocus.org in the
interim. Requires DOGGR to allow the public to search and
sort the well stimulation and related information by at least
the following criteria: 1) geographic area; 2) additive; 3)
chemical constituent; 4) Chemical Abstract Service number;
5) time period; and 6) operator.
9)Trade Secrets . Allows a supplier of well stimulation
chemicals to claim trade secret protections for the chemical
composition of additives; however, the supplier must still
provide the trade secret information to DOGGR. Requires a
supplier to substantiate a trade secret claim, which is
reviewed by DOGGR. If the supplier legitimately claims a
trade secret, requires the supplier to publicly disclose where
trade secret information has been withheld and provide
substitute information as specified.
If DOGGR receives a request for release of the trade secret
information to the public, requires DOGGR to notify the
supplier of the request and give the supplier at least 60 days
to commence a court action to prohibit the release of
information.
Allows disclosure of trade secret information to a government
officer or employee in connection with his or her official
duties or to a contractor with a government entity if, in the
opinion of DOGGR, disclosure is necessary and required for
satisfactory performance of a contract or to protect health
and safety.
Authorizes disclosure of trade secret information to a health
professional in the event of an emergency or to diagnose or
treat a patient.
To protect public health, requires a supplier to provide trade
secret information to a health professional, toxicologist, or
epidemiologist who is employed in the field of public health
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and who provides a written statement of need. Requires the
written statement of need to include the public health purpose
and reason the disclosure of the specific chemical and its
concentration is required.
Prohibits the following information from be protected as trade
secret: the identities of the chemical constituents of
additives; the concentration of the additives in the well
stimulation treatment fluids; any air or other pollution
monitoring data; health and safety data associated with well
stimulation treatment fluids; and the chemical composition of
the flowback fluid.
10)Annual Reports . Requires annual public reports from DOGGR
containing data and information on well stimulation as
specified.
11)Penalties . Authorizes a civil penalty between $10,000 to
$25,000 per day against a person who violates the well
stimulation requirements in this bill.
12)Fee Authority . Subject to appropriation by the Legislature,
authorizes DOGGR's fee authority to be used to fund a public
entity's costs associated with well stimulation treatments
including rulemaking and scientific studies required to
evaluate the treatment, inspections, and any air and water
quality sampling, monitoring, and testing performed by public
entities and the costs of SWRCB and the regional water quality
control boards for its ground water monitoring program (see
13) below).
13)Groundwater Monitoring Program . Requires, on or before
January 1, 2015, SWRCB to develop model groundwater monitoring
criteria to be implemented either on a well-by-well basis for
a well subject to well stimulation treatment, or on a regional
scale. Requires, on or before January 1, 2016, SWRCB or
appropriate regional water quality control board to begin
implementation of the regional groundwater monitoring
programs. Where there is no regional groundwater monitoring
plan approved by SWRCB or regional water quality control
board, requires the use of the well-by-well groundwater
monitoring plan.
EXISTING LAW :
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1)Requires DOGGR to supervise the drilling, operation,
maintenance, and abandonment of wells and the operation,
maintenance, and removal or abandonment of tanks and
facilities attendant to oil and gas production, including
certain pipelines that are within an oil and gas field, so as
to prevent, as far as possible, damage to life, health,
property, and natural resources; damage to underground oil and
gas deposits from infiltrating water and other causes; loss of
oil, gas, or reservoir energy, and damage to underground and
surface waters suitable for irrigation or domestic purposes by
the infiltration of, or the addition of, detrimental
substances.
2)Requires the operator of any well, before commencing the work
of drilling the well, to file with DOGGR a written notice of
intention to commence drilling. Prohibits the commencement of
drilling until approval is given by DOGGR. If DOGGR fails to
give the operator written response to the notice within 10
working days from the date of receipt, requires that failure
to be considered an approval of the notice.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)One-time costs of $2 million for DOGGR's initial activities
including rulemaking. Ongoing costs of approximately $2
million for DOGGR to provide regulatory oversight.
2)Unknown Increased initial and ongoing costs to the State Water
Resources Control Board (SWRCB) and regional boards to provide
groundwater monitoring depending on well activity.
3)Unknown significant costs to the Natural Resources Agency,
potentially in the hundreds of thousands of dollars to conduct
an independent scientific study.
4)Ongoing costs of approximately $2 million for the Air
Resources Board to update their regulations and provide
associated monitoring.
5)Unknown one-time and ongoing costs for CalRecycle and the
Department of Toxic Substance Control likely in the hundreds
of thousands of dollars to consult with DOGGR in regulation
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development and form multi-agency agreements.
This bill expands DOGGR's existing fee and assessment authority
(special fund) to cover all costs of the bill.
COMMENTS :
First of Its Kind. In a white paper developed last year by the
Natural Resources Defense Council (NRDC), NRDC stated that "no
state can boast a comprehensive disclosure rule [regarding
hydraulic fracturing]." NRDC concluded that adequate hydraulic
fracturing rules should contain the following key elements: 1)
prior notice of hydraulic fracturing to landowners and
residents, and disclosure of the chemicals to be used, at least
30 days before fracking commences; 2) complete
disclosure concerning the geological and environmental context
of the well;
3) chemical identification of all substances used in fracking,
including the Chemical Abstract Service numbers and actual
concentrations; 4) disclosure of other important information
about the hydraulic fracturing treatment, including the volume,
source, and type of the base fluid, the maximum pressure used, a
record of all annulus pressures, and the fracture length; 5)
information concerning the waste generated, its contents, and
the methods of waste storage and disposal;
6) requirement that confidential information is provided to
state regulators and a process for the public to challenge
confidentiality claims; and 7) immediate access for medical
professionals and first responders to confidential information
in order to diagnose and treat patients.
This bill contains essentially all the key elements outlined by
NRDC as well as additional requirements, such as ground water
monitoring plans and water quality sampling. Moreover, this
bill applies to all forms of well stimulation (e.g., acid well
stimulation treatment), not just hydraulic fracturing. Industry
statements suggest that acidization may be more important to the
development of the unconventional reserves in California's
Monterey Shale than fracking. For example, in a November 2010
interview with the Oil & Gas Financial Journal, former Venoco
Inc. Chief Executive Officer (now Executive Chairman) Tim
Marquez said, "[w]e think our primary completion method will be
big acid jobs" in the Monterey Shale.
With all of this considered, and in the words of the California
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League of Conservation Voter's support letter for this bill, "if
passed, SB 4 would be the first of its kind..."
Background on Well Stimulation . According to the Western States
Petroleum Association (WSPA), hydraulic fracturing (also known
as fracking) is a form of well stimulation used to obtain oil
and natural gas in areas where those energy supplies are trapped
in rock (i.e., shale) or sand formations. Once an oil or
natural gas well is drilled and properly lined with steel
casing, fluids are pumped down to an isolated portion of the
well at pressures high enough to cause cracks in shale
formations below the earth's surface. These cracks or fractures
allow oil and natural gas to flow more freely. Often, a
propping agent such as sand is pumped into the well to keep
fractures open.
In many instances, the fluids used in hydraulic fracturing are
water-based. There are some formations, however, that are not
fractured effectively by water-based fluids because clay or
other substances in the rock absorb water. For these
formations, complex mixtures with a multitude of chemical
additives may be used to thicken or thin the fluids, improve the
flow of the fluid, or even kill bacteria that can reduce
fracturing performance.
Another form of well stimulation is called acid matrix
stimulation, which involves the injection of acid-such as
hydrochloric or hydrofluoric-into an oil and gas well to create
or enhance channels for the oil and gas. Unlike hydraulic
fracturing, acid matrix stimulation injection pressures are not
high enough to fracture the formation.
In 2005, Congress enacted what is colloquially referred to as
the "Halliburton Loophole," which exempts hydraulic fracturing
(except when involving the injection of diesel fuels) from the
federal Safe Drinking Water Act. As a result of this action,
the U.S. Environmental Protection Agency (US EPA) lacks the
authority to regulate hydraulic fracturing activities that do
not use diesel fuel as an additive.
Around the same time that Congress exempted hydraulic fracturing
from the Safe Drinking Water Act, the country experienced a boom
in the production of shale oil and gas. From 2007 to 2011,
shale oil production increased more than fivefold, from
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approximately 39 million barrels to about 217 million barrels,
and shale gas production increased approximately fourfold, from
1.6 trillion cubic feet to 7.2 trillion cubic feet. This
increase in production was driven primarily by technological
advances in horizontal drilling and hydraulic fracturing that
made more shale oil and gas development economically viable.
But with this boom comes various issues with regard to
environmental health and safety, which has caused enormous
public anxiety. Cases of environmental contamination attributed
to hydraulic fracturing have been reported in Wyoming, Texas,
Colorado, West Virginia, and Pennsylvania. Consequently,
governments at all levels across the country are looking to
regulate the practice and address these concerns.
The risks associated with shale oil and gas development .
According to a recent report from the U.S. Government
Accountability Office (GAO), which is an independent,
nonpartisan agency that works for Congress, "[d]eveloping oil
and gas resources?poses inherent environmental and public health
risks, but the extent of risks associated with shale oil and gas
development is unknown, in part, because the studies we reviewed
do not generally take into account potential long-term,
cumulative effects." The GAO's report categorizes the
environmental risks into the four major categories: air quality,
water quantity, water quality, and land and wildlife.
With regard to air quality, the risks are "generally the result
of engine exhaust from increased truck traffic, emissions from
diesel-powered pumps used to power equipment, intentional
flaring or venting of gas for operational reasons, and
unintentional emissions of pollutants from faulty equipment."
The GAO report also explains how silica sand, a proppant
commonly used in hydraulic fracturing, and storing fracturing
fluids and produced waters in impoundments can cause air quality
issues. Silica sand, if not properly handled, can become
airborne, lodge into a person's lungs, and cause silicosis,
which is an incurable lung disease. Impoundments (i.e., ponds)
containing fracturing fluids and produced waters (i.e., the
water produced when oil and gas are extracted from the ground)
pose a risk because the evaporation of the fluids has the
potential to release contaminants into the atmosphere.
With regard to water quantity, water is used for well drilling
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operations to make drilling mud as well as to cool and lubricate
the drill bits. Water is also the primary component of
hydraulic fracturing fluids. According to the GAO, "the amount
of water used for shale gas development is small in comparison
to other water uses, such as agriculture and other industrial
purposes. However, the cumulative effects of using surface
water or ground water at multiple oil and gas development sites
can be significant at the local level, particularly in areas
experiencing drought conditions." It should be noted that the
oil and gas industry and DOGGR both assert that the amount of
water used for hydraulic fracturing in California is a fraction
of what is used in other states. This assertion is based on
information voluntarily provided by oil and gas operators. It
is not clear whether this information is representative of all
hydraulic fracturing in the state. Additionally, with the
potential for an oil boom in the Monterey Shale (which is
explained in more detail below), it would be too speculative to
determine the type and amount of well stimulation that will take
place in the future and how much water will be needed.
With regard to water quality, the GAO explains that shale oil
and gas development pose risks from contamination of surface
water and ground water as a result of spills and releases of
hydraulic fracturing chemicals, produced water, and drill
cuttings. Spills and releases of these materials can occur as a
result of tank ruptures, blowouts, equipment or impoundment
failures, overfills, vandalism, accidents, ground fires, or
operational errors.
The potential for the spill and release of chemicals involved in
hydraulic fracturing has received a great amount of public
attention. According to a recent congressional report, between
2005 and 2009, oil and gas companies throughout the United
States used hydraulic fracturing products containing 29
chemicals that are known or possible human carcinogens;
regulated under the Safe Drinking Water Act for their risk to
human health; or listed as hazardous air pollutants under the
Clean Air Act. As for produced water, it can carry a range of
contaminants, including hydraulic fracturing chemicals, salts,
metals, oil, grease, dissolved organics, and naturally occurring
radioactive materials. Drill cuttings (i.e., the broken bits of
solid material removed from drilling) may contain naturally
occurring radioactive materials, as well.
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The potential for underground migration is also a potential risk
to water quality. The GAO explains that "[u]nderground
migration can occur as a result of improper casing and cementing
of the wellbore as well as the intersection of induced fractures
with natural fractures, faults, or improperly plugged dry or
abandoned wells. There are also concerns that induced fractures
can grow over time and intersect with drinking water aquifers."
It should be noted that the oil and gas industry has provided
information claiming that hydraulic fracturing typically occurs
thousands of feet below the earth's surface and that the well
casing for these wells extends below an impervious layer of rock
"that would prevent any migration of fluids up into the drinking
water supply." Assuming that the industry is correct, there is
still the problem with well casing failures. A 2000 Society of
Petroleum Engineers article regarding an oil field in Kern
County explained that "the well failure rate, although lower
than that experienced in the 1980s, is still economically
significant at 2 to 6% of active wells per year." In
Pennsylvania, poor cementing around a well casing allowed
methane to contaminate the water wells of 19 families.
Moreover, little data exists on fracture growth in shale
formations following multistage hydraulic fracturing over an
extended time period; the frequency with which refracturing of
horizontal wells may occur; the effect of refracturing on
fracture growth over time; and the likelihood of adverse effects
on drinking water aquifers from a large number of hydraulically
fractured wells in close proximity to each other.
With regard to land and wildlife, the GAO explains that
"clearing land of vegetation and leveling the site to allow
access to the resource, as well as construction of roads,
pipelines, storage tanks, and other infrastructure needed to
extract and transport the resource can fragment habitats?[which]
increases disturbances?, provides pathways for predators, and
helps spread nonnative plant species." Noise, the presence of
new infrastructure, and spills of oil, gas, or other toxic
chemicals are other risks that can negatively affect wildlife
and habitat. There is also the issue of earthquakes and
hydraulic fracturing. According to the GAO report, well
injections, especially the injection of produced water, have
been connected to seismicity.
Ideally, the environmental risks referenced above would be
analyzed by the lead agency under CEQA. However, according to a
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complaint in a recent lawsuit filed against DOGGR by a number of
environmental groups, the agency has been "approving permits for
oil and gas wells after exempting such projects from
environmental review or? issuing boilerplate negative
declarations finding no significant impacts from these
activities."
Well Stimulation in California. According to the oil and gas
industry, hydraulic fracturing has been used in California for
decades. The industry claims that over 90% of hydraulic
fracturing occurs in Kern County, in areas with no potable
water, no surrounding population, and no other significant
business interests. However, reports from various sources
suggest that hydraulic fracturing in California will likely
increase significantly in the upcoming years, spreading to areas
throughout the state.
A recent report from the University of Southern California (USC)
explains that "California boasts perhaps the largest deep-shale
reserves in the world. Those reserves exist within the Monterey
Shale Formation, a 1,750 square mile swath of mostly underground
shale rock that runs lengthwise through the center of the state,
with the major portion in the San Joaquin Basin." The U.S.
Energy Department estimates that the Monterey Shale contains
more than 15 billion barrels of oil, accounting for
approximately two-thirds of the shale-oil reserve in the United
States. Additionally, according to a 2008 paper published by
the Society of Petroleum Engineers, "it is believed that
hydraulic fracturing has a significant potential in many
Northern California gas reservoirs."
DOGGR, although having statutory authority to regulate well
stimulation, has not yet developed regulations to address the
activity. As explained below, the agency is currently focused
on developing regulations that require oil and gas operators to
take certain protective measures and provide information about
hydraulic fracturing operations. Additionally, as referenced
above, DOGGR may not be conducting adequate environmental review
through the CEQA process to determine if there are significant
impacts from hydraulic fracturing.
DOGGR's Draft Regulations. On December 28, 2012, DOGGR released
a pre-rulemaking discussion draft of regulations on hydraulic
fracturing-this draft does not address other forms of well
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stimulation, such as acid matrix stimulation. The proposed
hydraulic fracturing regulations attempt to impose requirements
on operators aimed to improve transparency and safety.
Specifically, the proposed regulations would require an operator
to: 1) submit information to DOGGR at least 10 days prior to
beginning hydraulic fracturing operations and notify DOGGR at
least 24 hours prior to commencing hydraulic fracturing
operations (advance disclosure of hydraulic fracturing chemicals
is not required); 2) prior to operations, test the structural
integrity of wells and casings to prevent fluid migration; 3)
store and handle hydraulic fracturing fluids in a specified
manner; 4) monitor a specified set of parameters during
hydraulic fracturing operations and, in case a breach occurs,
terminate operations and immediately notify DOGGR about the
breach; 5) after the conclusion of operations, monitor wells for
up to 30 days and maintain data for a period of five years; and
6) disclose data to a Chemical Disclosure Registry (such as
fracfocus.org) that is not a trade secret, unless a health
professional submits a written statement of need stating that
the trade secret information will be used for diagnosis or
treatment of an individual exposed to hazardous hydraulic
fracturing chemicals and the health professional also executes a
confidentiality agreement.
These proposed regulations will be vetted through a year-long
formal rulemaking process beginning the summer or fall of 2013.
In the meantime, DOGGR has conducted public workshops in Los
Angeles and Sacramento about the proposed regulations, with more
planned in California cities like Bakersfield and Santa Maria
through July 2013.
Analysis Prepared by : Mario DeBernardo / NAT. RES. / (916)
319-2092
FN: 0002264