New Laws Target California’s State Oil and Gas Agency and Address Liability Concerns
California Governor Gavin Newsom signed California Assembly Bill 1057 (AB 1057) and California Senate Bill 551 (SB 551) into law on October 12, 2019. AB 1057 and SB 551, 2019 Leg., 2018-19 Sess. (Cal. 2019). AB 1057 and SB 551 include four significant changes to California’s regulation of oil and gas, which will go into effect on January 1, 2020.
First, AB 1057 renames California’s state oil and gas regulator, the Division of Oil, Gas, and Geothermal Resources (“DOGGR”). DOGGR will be renamed as the Geologic Energy Management Division (“CalGEM”). AB 1057, Section 6 (amending Cal. Pub. Res. Code § 607(b)(1)).
Second, AB 1057 includes a significant change in the purpose of CalGEM. With the enactment of AB 1057, the newly named CalGEM’s purpose includes:
“[P]rotecting public health and safety and environmental quality, including reduction and mitigation of greenhouse gas emissions associated with the development of hydrocarbon and geothermal resources in a manner that meets the energy needs of the state.”
AB 1057, Section 9 (adding Cal. Pub. Res. Code §3011). This new purpose arguably could conflict with other statutory mandates that apply to CalGEM, including a California Public Resources Code Section that requires the Supervisor of CalGEM to “encourage the wise development of oil and gas resources.” Cal. Pub. Res. Code § 3106(d).
Third, AB 1057 gives CalGEM new authority to require additional bonding to cover operations related to wells. Existing law requires specific bonding amounts based on well depths and the number of wells. See Cal. Pub. Res. Code §3204, 3205. AB 1057 allows CalGEM to require additional bonding that does not exceed the “[D]ivision’s estimation of the reasonable costs of properly plugging and abandoning all of the operator’s wells and decommissioning any attendant production facilities in accordance with Section 3208, or thirty million dollars ($30,000,000).” AB 1057, Section 13 (adding Cal. Pub. Res. Code §3205.3).
Fourth, SB 551 requires oil and gas operators to submit a report to the Supervisor of CalGEM detailing the value of the “total liability to plug and abandon all wells and to decommission all attendant production facilities, including any needed site remediation ….” SB 551, Section 1 (adding Cal. Pub. Res. Code § 3205.7). The requirement to submit these reports will begin on July 1, 2022. Ibid.
New Laws Modify the California State Lands Commission’s Authority Related to State Oil and Gas Leases and Federal Lands
Governor Newsom signed California Assembly Bill 342 (AB 342) into law on October 12, 2019, which will go into effect on January 1, 2020. AB 342, 2019 Leg., 2018-19 Sess. (Cal. 2019). AB 342 prohibits the California State Lands Commission from entering into leases or other conveyances for state public lands that authorize “new construction of oil- and gas-related infrastructure … to support production of oil and natural gas upon federal lands that are designated as, or were at any time designated as, federally protected lands.” AB 342, Section 1 (adding Cal. Pub. Res. Code § 6827.5).
Newsom also signed California Assembly Bill 585 (AB 585) into law on July 30, 2019, which will go into effect on January 1, 2020. AB 585, 2019 Leg., 2018-19 Sess. (Cal. 2019). AB 585 codifies the criteria the California State Lands Commission uses to consider whether or not to approve a transfer of an oil or gas lease located on state land. AB 585, Section 1 (amending Cal. Pub. Res. Code § 6804). The new criteria include a review of: (1) an assignee’s experience with oil and gas production; (2) financial considerations affecting an assignee’s ability to comply with a lease; (3) an assignee’s record of noncompliance with contracts with government entities; and (4) an assignee’s record of noncompliance with other laws in general. AB 585, Section 1 (adding Cal. Pub. Res. Code § 6804(b)(1)(A)-(D)). Further, the new law sets forth that an assignor, transferor, or sublessor will remain liable for obligations under the lease unless the California State Lands Commission specifically releases the assignor, transferor, or sublessor from liability. AB 585, Section 1 (adding Cal. Pub. Res. Code 6804(d)). In certain circumstances, a release may be granted if the assignor, transferor, or sublessor posts a security to fulfill outstanding lease obligations. AB 585, Section 1 (adding Cal. Pub. Res. Code § 6804(d)(2)(A)).
Authored by Tracy Hunckler and Ryan Mahoney. Originally published in the RMMLF Mineral Law Newsletter, Vol. XXXVI, No. 4, 2019.