California Assembly Bill 2729 will increase oil and gas well operators’ blanket indemnity bond amount. The changes will take effect on January 1, 2018.
Oil and gas well operators in California are regulated by the Department of Conservation‘s (DOC) Division of Oil, Gas & Geothermal Resources. Operators have the option of posting individual indemnity bonds for each of their wells, or they can post a blanket indemnity bond if they operate more than 20 wells at a time. AB 2729 changes bond amounts only for blanket bonds.
Operators posting blanket bonds will need to increase their blanket surety bonds to the amounts listed below, based on the number of wells they operate in California (the number of wells does not include properly abandoned wells):
- $200,000 for 50 or fewer wells
- $400,000 for more than 50 and no more than 500 wells
- $2,000,000 for more than 500 and no more than 10,000 wells
- $3,000,000 for more than 10,000 wells
Under current law, operators are assessed penalties for idle wells and must pay fees, file an escrow account with deposits of $5,000 per idle well, post indemnity bonds of $5,000 per well or file a management and elimination plan for their idle wells. AB 2729 will remove some of those options, allowing operators to choose to pay fees or file a plan for management and elimination of idle wells.
AB 2729 increases the fees assessed for idle wells and changes the criteria of the management and elimination plan. Fees are assessed as follows:
- $150 per well idle for longer than three but less than eight years
- $300 per well idle for longer than eight but less than fifteen years
- $750 per well idle for longer longer than fifteen but less than twenty years
- $1,500 per well idle for longer than twenty years
AB 2729 was introduced in an effort to increase regulation of idle wells, which are often neglected or abandoned. In addition to increasing the surety bond, AB 2729 will adjust the definitions of “long-term idle wells” and “idle wells,” and clarifies other definitions. Idle wells are wells that have not been producing oil or natural gas, or have not been used for various activities (detailed in AB 2729) for 24 consecutive months. Long-term idle wells are wells that have been idle for eight or more years (previously ten or more years).
Increasing the surety bond amounts and redefining idle and long-term idle wells will help to more efficiently ensure wells are properly abandoned. Wells that sit idle for too long are not well-maintained and pose an environmental hazard. AB 2729 aims to increase oversight and reduce negative impact on the environment.