Existing law vests with the State Lands Commission control over certain public lands. Existing law authorizes, with respect to oil, gas, and mineral leases, the assignment, transfer, or sublet as to all or any part of certain leased or permitted lands, as prescribed, subject to approval by the commission, to any person, association of persons, or corporation, who at the time of the proposed assignment, transfer, or sublease, possesses certain qualifications.

This bill would authorize the commission, in considering an approval of an assignment, transfer, or sublease of a lease under those provisions, to consider whether the proposed assignee, as defined, is likely to comply with all provisions of the assigned lease for the duration of the lease term, as determined by specified factors.

Existing law vests with the State Lands Commission control over certain public lands. Existing law authorizes, with respect to oil, gas, and mineral leases, the assignment, transfer, or sublet as to all or any part of certain leased or permitted lands, as prescribed, subject to approval by the commission, to any person, association of persons, or corporation, who at the time of the proposed assignment, transfer, or sublease, possesses certain qualifications.

This bill would authorize the commission, in considering an approval of an assignment, transfer, or sublet of a lease under those provisions, to consider whether the proposed assignee, as defined, is likely to comply with all provisions of the assigned lease for the duration of the lease term, as determined by specified factors.

Existing law vests with the State Lands Commission control over certain public lands. Existing law authorizes, with respect to oil, gas, and mineral leases, the assignment, transfer, or sublet as to all or any part of certain leased or permitted lands, as prescribed, subject to approval by the commission, to any person, association of persons, or corporation, who at the time of the proposed assignment, transfer, or sublease, possesses certain qualifications.

This bill would authorize the commission, in considering an approval of an assignment, transfer, or sublet of a lease under those provisions, to consider whether the proposed assignee, as defined, is likely to comply with all provisions of the assigned lease for the duration of the lease term, as determined by specified factors.

Existing law vests with the State Lands Commission control over certain public lands. Existing law requires the commission to promulgate rules and regulations to require any person extracting oil or gas or other minerals from lands under the jurisdiction of the commission to remove beach and underwater obstructions. Existing law authorizes, with respect to oil, gas, and mineral leases, the assignment, transfer, or sublet as to all or any part of certain leased or permitted lands, as prescribed, subject to approval by the commission, to any person, association of persons, or corporation, who at the time of the proposed assignment, transfer, or sublease, possesses certain qualifications.

This bill would instead require that those regulations require any person extracting oil or gas or other minerals from lands under the jurisdiction of the commission remove beach, underwater, and any other obstructions deemed necessary by the commission. authorize the commission, in considering an approval of an assignment, transfer, or sublet of a lease under those provisions, to consider whether the proposed assignee, as defined, is likely to comply with all provisions of the assigned lease for the duration of the lease term, as determined by specified factors.

Existing law vests with the State Lands Commission control over certain public lands. Existing law requires the commission to promulgate rules and regulations to require any person extracting oil or gas or other minerals from lands under the jurisdiction of the commission to remove beach and underwater obstructions.

This bill would instead require that those regulations require any person extracting oil or gas or other minerals from lands under the jurisdiction of the commission remove beach, underwater, and any other obstructions deemed necessary by the commission.

GOVERNOR'S VETO

GV Bill Id:AB 1472

Author:(Limón)

As Enrolled Ver:July 10, 2017

2/3 vote

SUMMARY: Authorizes the State Lands Commission (SLC), when considering the approval of an assignment, transfer, or sublet of an oil and gas lease, to consider whether a proposed assignee is likely to comply with the provisions of the assigned, transferred, or sublet lease for the duration of the lease term. Specifically, this bill specifies that the SLC may consider all of the following:

1. The proposed assignee's prior experience with offshore or onshore oil or gas production or mineral extraction, as applicable;
2. Any financial or economic considerations that may affect a proposed assignee and its ability to comply with the terms of a lease;
3. Any information concerning the proposed assignee's compliance or noncompliance with other contractual obligations to the state or any other party; and,
4. Any record of noncompliance with any other laws or regulations.

EXISTING LAW:

1. Establishes, pursuant to the California Coastal Sanctuary Act of 1994 (AB 2444, (O'Connell), Chapter 970, Statutes of 1994) (CCSA), the California Coastal Sanctuary (Sanctuary), which includes all state waters subject to tidal influence west of the Carquinez Bridge, except oil or gas leases in effect on January 1, 1995, unless the lease is deeded or otherwise reverts to the state after that date.
2. Prohibits in most cases, a state agency or state officer from entering into any new lease for the extraction of oil or gas from the Sanctuary.
3. Authorizes the SLC to enter into any lease for the extraction of oil or gas from state-owned tide and submerged lands in the Sanctuary if the SLC determines that those oil or gas deposits are being drained by means of producing wells upon adjacent federal lands and the lease is in the best interest of the state.
4. Authorizes the SLC to adjust the boundaries of an existing offshore oil and gas lease to encompass all of an oil and gas field partially contained in the lease.
5. Allows all or any part of the lands under an oil or gas lease to be assigned, transferred, or sublet to any person, association of persons, or corporation, who at the time of the proposed assignment, transfer, or sublease, possesses the qualifications required by the law.
6. Requires SLC approval for any assignment, transfer, or sublet of a lease. Requires the assignee, transferee, or sublessee to be bound by the same terms of lease the original lessee was bound to.

FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs.

COMMENTS: The Legislature has a long history of excluding areas from leasing for offshore oil and gas development. Beginning in 1921, and many times since, the Legislature has enacted laws that set aside offshore areas where oil and gas leasing is generally prohibited. The 1921 Leasing Act prohibited the issuance of any prospecting permits or leases within one mile of any municipality. The 1921 Act was amended in 1929 to prohibit the issuance of any new lease in offshore state waters. Between 1938 and 1955, leases could only be issued by the SLC if drainage of the state's oil and gas could be shown. In 1955, the Legislature authorized new oil and gas leases in state offshore waters but has steadily increased the area that is closed to these leases. Finally, in 1994, the CCSA removed all state lands underlying the Pacific Ocean from the SLC's oil and gas general leasing authority. The CCSA contains two limited exceptions that allow the SLC to approve new offshore oil and gas production in state waters. One exception is if the SLC determines that state oil or gas deposits are being drained by means of producing wells upon adjacent federal lands and a new oil and gas lease is in the best interests of the state. The other exception allows the SLC to adjust the boundaries of an existing offshore oil and gas lease to encompass all of an oil and gas field partially contained in the lease.

There are currently 15 oil and gas leases producing and nine that are not. These leases can be assigned or transferred to different oil companies with SLC approval. SLC does not have any record of a request to sublease in the last 20 years. There is no evidence that SLC has denied any assignments or transfers in the past. However, SLC does evaluate whether the assignment or transfer is in the best interest of the state and whether the new assignee will be able to comply with the terms of the lease. This bill codifies the factors for SLC to consider when making the determination whether a proposed assignment, transfer, or sublet of a lease is appropriate. According to the State Controller (a member of the SLC), the factors in the bill are already the criteria for reviewing an application to assign, transfer, or sublet an oil and gas lease.

GOVERNOR'S VETO MESSAGE:

I am returning Assembly Bill 1472 without my signature.

This bill outlines the factors that the California State Lands Commission (Commission) may consider when evaluating an application to assign, transfer, or sublet an oil and gas lease.

The Commission currently has broad authority to assess whether an applicant is able to meet the obligations under the proposed lease. For that reason, I think this bill is unnecessary.

Analysis Prepared by: Michael Jarred / NAT. RES. / (916) 319-2092 FN: 0001304

 CONSENT  

Bill No: AB 1472

Author:

:

Vote:

SENATE NATURAL RES. & WATER COMMITTEE: 9-0, 6/13/17

AYES: Hertzberg, Stone, Allen, Atkins, Hueso, Jackson, Monning, Stern, Vidak

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 74-4, 5/15/17 - See last page for vote

SUBJECT:

SOURCE: Betty T. Yee, California State Controller

DIGEST:

This bill authorizes the State Lands Commission (commission), when considering the approval of an assignment, transfer, or sublet of an oil, gas, or mineral lease to consider whether a proposed assignee is likely to comply with the provisions of the lease for the lease term.

ANALYSIS:

Existing law:

1. Vests with the commission control over certain public lands including tidelands and other sovereign lands. The commission is composed of three members: the State Controller, the Lieutenant Governor and the Director of Finance.
2. Authorizes the commission to approve oil, gas, and mineral leases for the extraction of these resources from the lands under its control, although the California Coastal Sanctuary Act of 1994 (act) (AB 2444, O’Connell, Chapter 970, Statutes of 1994) generally prohibits the issuance of any new oil and gas extraction lease offshore, except as specified. The act grandfathers in those leases in effect as of January 1, 1995.
3. Authorizes the commission to approve the assignment, transfer or sublet of all or part of certain leases or permitted lands, as prescribed, to any person, association of persons, or corporation, who at the time of the proposed assignment, transfer, or sublease, possess certain qualifications.

This bill:

1. Authorizes the commission, when considering the approval of an assignment, transfer, or sublet of an oil, gas, or mineral lease to consider whether a proposed assignee is likely to comply with the provisions of the lease for the lease term.
2. Factors for the commission to consider include all of the following:
   1. The prior experience of the proposed assignee with oil or gas production or mineral extraction, as applicable.
   2. Any financial or economic consideration that may affect the proposed assignee’s ability to comply with lease terms.
   3. Any information concerning the proposed assignee’s compliance or noncompliance with other contractual obligations, as specified.
   4. Any record of noncompliance with law or regulations.
3. Defines proposed assignee as the person or entity who will hold the lease after the commission’s actions, or that manages the assignee, as specified.

Background

According to the commission, existing onshore and offshore oil and gas extraction lease holders sometimes ask the commission’s approval to transfer, assign or sublease all of or part of their leases to other entities. The commission must approve this assignment or transfer through a public meeting, and has approved “dozens” over the last few decades. It is the commission’s practice to review the ability of the assignee, transferee or sub-lessee to fulfill the terms of the lease.

Comments

Existing oil and gas and mineral extraction leases under the commission’s jurisdiction. According to the commission, there are over 50 offshore and onshore (in the Sacramento-San Joaquin Delta) oil and gas leases, an additional six leases for mineral extraction on sovereign lands, and approximately 20 mineral, oil and gas and geothermal leases on school lands as well. Senate Natural Resources and Water Committee staff understands that none of these leases have been sublet. Many of the leases, particularly the offshore oil and gas leases, were originally issued many decades ago. As a result, the commission’s ability to revisit significantly outdated lease terms can be limited to when a lease reassignment or transfer is sought.

A recent example of likely liability to the state when offshore oil and gas lease terms are not fulfilled. In May 2015, the Line 901 pipeline used to bring oil onshore near Refugio Beach in Santa Barbara County ruptured. The resulting oil spill soiled beaches and marine life up and down the coast. Oil and gas production at offshore platforms that depended upon Line 901 ceased and Line 901 remains out-of-service. One of the platforms affected was Venoco’s Platform Holly. In April 2017, Venoco quitclaimed three offshore oil and gas leases back to the state and entered bankruptcy proceedings. The commission approved the transfer of the relevant leases to Venoco from ExxonMobil in 1997 with contingent language extending liability to ExxonMobil in the event of Venoco’s noncompliance with lease terms. (Leases generally require removal of all equipment and added facilities to the commission’s satisfaction.) The commission is pursuing its options with respect to ExxonMobil now. While the commission will receive approximately $22 million in surety bond coverage for the platform and the decommissioning of it and attendant facilities and equipment, it is estimated that $63 - $74 million will be required to plug and abandon the associated oil and gas wells and another $44 million, at a minimum, is likely to be required to decommission the platform itself (which may well fall to the state to perform).

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 6/26/17)

Betty T. Yee, California State Controller (source)

California State Lands Commission

Environmental Defense Center

Santa Barbara ChannelKeeper

Sierra Club California

OPPOSITION: (Verified 6/26/17)

None received

ARGUMENTS IN SUPPORT: According to the author, this bill “requires that the [commission], when reviewing an application to assign, transfer or sublet a lease for oil and gas production, carefully evaluate any history of noncompliance, financial liabilities, experience with offshore production, and whether the assignee will be able to comply with the terms of the lease. While this is the Commission’s current practice, the statute lacks specificity about what factors the Commission should consider when reviewing an application. This bill provides transparency and certainty for everyone involved in the process.”

Writing in support the commission further notes that this bill “clarifies that not just changes to the assignee, but mergers, acquisitions or changes in the overall controlling structure where the leasing entity, such as a corporation or limited liability company, remains unchanged but the ownership or control of that leasing entity changes, constitutes an assignment that must be approved by the commission. This protects the commission and the state from operational changes that could affect a leasing entity’s ability to meet its ongoing obligations under its lease.”

ASSEMBLY FLOOR: 74-4, 5/15/17

AYES: Acosta, Aguiar-Curry, Arambula, Baker, Berman, Bigelow, Bloom, Bocanegra, Bonta, Burke, Caballero, Calderon, Cervantes, Chau, Chávez, Chen, Chiu, Chu, Cooley, Cooper, Cunningham, Dababneh, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Gray, Grayson, Irwin, Jones-Sawyer, Kalra, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NOES: Travis Allen, Brough, Dahle, Harper

NO VOTE RECORDED: Choi, Holden

Prepared by:

6/27/17 17:04:46

**** END ****

SENATE COMMITTEE ON NATURAL RESOURCES AND WATER

Senator Robert Hertzberg, Chair

2017 - 2018 Regular

Bill No: AB 1472 Hearing Date: June 13, 2017

Subject: Public lands: assignments and transfers: oil, gas, and mineral leases

BACKGROUND AND EXISTING LAW

1. Existing law vests with the State Lands Commission (commission) control over certain public lands including tidelands and other sovereign lands. The commission is composed of three members: the State Controller, the Lieutenant Governor and the Director of Finance.
2. Existing law authorizes the commission to approve oil, gas, and mineral leases for the extraction of these resources from the lands under its control, although the California Coastal Sanctuary Act of 1994 (AB 2444, O’Connell, c. 970, Stats. 1994)(act) generally prohibits the issuance of any new oil and gas extraction lease offshore, except as specified. The act grandfathers in those leases in effect as of January 1, 1995.
3. Existing law also authorizes the commission to approve the assignment, transfer or sublet all or part of certain leases or permitted lands, as prescribed, to any person, association of persons, or corporation, who at the time of the proposed assignment, transfer, or sublease, possess certain qualifications.
4. According to the commission, existing onshore and offshore oil and gas extraction lease holders sometimes ask the commission’s approval to transfer, assign or sublease all of or part of their leases to other entities. The commission must approve this assignment or transfer through a public meeting, and has approved “dozens” over the last few decades. It is the commission’s practice to review the ability of the assignee, transferee or sub-lessee to fulfill the terms of the lease.

PROPOSED LAW

This bill would add specific conditions for the commission to consider when determining whether to approve an assignment, transfer or sublet of an oil, gas, or mineral lease. Specifically this bill would:

• Authorize the commission to consider whether, if approved, a proposed assignee is likely to comply with the provisions of the lease for the duration of the lease term. The factors to consider include all of the following:
  • The prior experience of the proposed assignee with oil or gas production or mineral extraction, as applicable.
  • Any financial or economic consideration that may affect the proposed assignee’s ability to comply with lease terms.
  • Any information concerning the proposed assignee’s compliance or noncompliance with other contractual obligations, as specified.
  • Any record of noncompliance with law or regulations.
• Define proposed assignee as the person or entity who will hold the lease after the commission’s actions, or that manages the assignee, as specified.

ARGUMENTS IN SUPPORT

According to the author, this bill “requires that the [commission], when reviewing an application to assign, transfer or sublet a lease for oil and gas production, carefully evaluate any history of noncompliance, financial liabilities, experience with offshore production, and whether the assignee will be able to comply with the terms of the lease. While this is the Commission’s current practice, the statute lacks specificity about what factors the Commission should consider when reviewing an application. This bill provides transparency and certainty for everyone involved in the process.”

Writing in support the commission further notes that this bill “clarifies that not just changes to the assignee, but mergers, acquisitions or changes in the overall controlling structure where the leasing entity, such as a corporation or limited liability company, remains unchanged but the ownership or control of that leasing entity changes, constitutes an assignment that must be approved by the commission. This protects the commission and the state from operational changes that could affect a leasing entity’s ability to meet its ongoing obligations under its lease.”

ARGUMENTS IN OPPOSITION

None received

COMMENTS

Existing oil and gas and mineral extraction leases under the commission’s jurisdiction. According to the commission, there are over 50 offshore and onshore (in the Sacramento-San Joaquin Delta) oil and gas leases, an additional six leases for mineral extraction on sovereign lands, and approximately 20 mineral, oil and gas and geothermal leases on school lands as well. Committee staff understands that none of these leases have been sublet. Many of the leases, particularly the offshore oil and gas leases, were originally issued many decades ago. As a result, the commission’s ability to revisit significantly outdated lease terms can be limited to when a lease reassignment or transfer is sought.

A recent example of likely liability to the state when offshore oil and gas lease terms are not fulfilled. In May 2015, the Line 901 pipeline used to bring oil onshore near Refugio Beach in Santa Barbara County ruptured. The resulting oil spill soiled beaches and marine life up and down the coast. Oil and gas production at offshore platforms that depended upon Line 901 ceased and Line 901 remains out-of-service. One of the platforms affected was Venoco’s Platform Holly. In April 2017, Venoco quitclaimed three offshore oil and gas leases back to the state and entered bankruptcy proceedings. The commission approved the transfer of the relevant leases to Venoco from ExxonMobil in 1997 with contingent language extending liability to ExxonMobil in the event of Venoco’s noncompliance with lease terms. (Leases generally require removal of all equipment and added facilities to the commission’s satisfaction.) The commission is pursuing its options with respect to ExxonMobil now. While the commission will receive approximately $22 million in surety bond coverage for the platform and the decommissioning of it and attendant facilities and equipment, it is estimated that $63 - $74 million will be required to plug and abandon the associated oil and gas wells and another $44 million, at a minimum, is likely to be required to decommission the platform itself (which may well fall to the state to perform).

SUPPORT

Betty T Yee, California State Controller (sponsor)

California State Lands Commission

Environmental Defense Center

Santa Barbara ChannelKeeper

Sierra Club of California

OPPOSITION

None Received

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1472

Author:(Limón)

As Amended Ver:April 20, 2017

Majority vote

SUMMARY: Authorizes the State Lands Commission (SLC), when considering the approval of an assignment, transfer, or sublet of an oil and gas lease, to consider whether a proposed assignee is likely to comply with the provisions of the assigned, transferred, or sublet lease for the duration of the lease term. Specifically, this bill specifies that the SLC may consider all of the following:

1. The proposed assignee's prior experience with offshore or onshore oil or gas production or mineral extraction, as applicable;
2. Any financial or economic considerations that may affect a proposed assignee and its ability to comply with the terms of a lease;
3. Any information concerning the proposed assignee's compliance or noncompliance with other contractual obligations to the state or any other party; and,
4. Any record of noncompliance with any other laws or regulations.

EXISTING LAW:

1. Establishes, pursuant to the California Coastal Sanctuary Act of 1994 (AB 2444, (O'Connell), Chapter 970, Statutes of 1994) (CCSA), the California Coastal Sanctuary (Sanctuary), which includes all state waters subject to tidal influence west of the Carquinez Bridge, except oil or gas leases in effect on January 1, 1995, unless the lease is deeded or otherwise reverts to the state after that date.
2. Prohibits in most cases, a state agency or state officer from entering into any new lease for the extraction of oil or gas from the Sanctuary.
3. Authorizes the SLC to enter into any lease for the extraction of oil or gas from state-owned tide and submerged lands in the Sanctuary if the SLC determines that those oil or gas deposits are being drained by means of producing wells upon adjacent federal lands and the lease is in the best interest of the state.
4. Authorizes the SLC to adjust the boundaries of an existing offshore oil and gas lease to encompass all of an oil and gas field partially contained in the lease.
5. Allows all or any part of the lands under an oil or gas lease to be assigned, transferred, or sublet to any person, association of persons, or corporation, who at the time of the proposed assignment, transfer, or sublease, possesses the qualifications required by the law.
6. Requires SLC approval for any assignment, transfer, or sublet of a lease. Requires the assignee, transferee, or sublessee to be bound by the same terms of lease the original lessee was bound to.

FISCAL EFFECT: According to the Assembly Appropriations Committee, no additional SLC costs.

COMMENTS: The Legislature has a long history of excluding areas from leasing for offshore oil and gas development. Beginning in 1921, and many times since, the Legislature has enacted laws that set aside offshore areas where oil and gas leasing is generally prohibited. The 1921 Leasing Act prohibited the issuance of any prospecting permits or leases within one mile of any municipality. The 1921 Act was amended in 1929 to prohibit the issuance of any new lease in offshore state waters. Between 1938 and 1955, leases could only be issued by the SLC if drainage of the state's oil and gas could be shown. In 1955, the Legislature authorized new oil and gas leases in state offshore waters but has steadily increased the area that is closed to these leases. Finally, in 1994, the CCSA removed all state lands underlying the Pacific Ocean from the SLC's oil and gas general leasing authority. The CCSA contains two limited exceptions that allow the SLC to approve new offshore oil and gas production in state waters. One exception is if the SLC determines that state oil or gas deposits are being drained by means of producing wells upon adjacent federal lands and a new oil and gas lease is in the best interests of the state. The other exception allows the SLC to adjust the boundaries of an existing offshore oil and gas lease to encompass all of an oil and gas field partially contained in the lease.

There are currently 15 oil and gas leases producing and nine that are not. These leases can be assigned or transferred to different oil companies with SLC approval. SLC does not have any record of a request to sublease in the last 20 years. There is no evidence that SLC has denied any assignments or transfers in the past. However, SLC does evaluate whether the assignment or transfer is in the best interest of the state and whether the new assignee will be able to comply with the terms of the lease. This bill codifies the factors for SLC to consider when making the determination whether a proposed assignment, transfer, or sublet of a lease is appropriate. According to the State Controller (a member of the SLC), the factors in the bill are already the criteria for reviewing an application to assign, transfer, or sublet an oil and gas lease.

Analysis Prepared by: Michael Jarred / NAT. RES. / (916) 319 2092 FN: 0000273

Date of Hearing: May 3, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 1472

Author:(Limón) – As Amended Ver:April 20, 2017

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill authorizes the State Lands Commission (SLC), when considering the approval of an assignment, transfer, or sublet of an oil and gas lease, to consider whether a proposed assignee, as defined, is likely to comply with the provisions of the lease for the duration of the lease term. This bill specifies the SLC may consider all of the following:

• 1. The proposed assignee’s prior experience with offshore or onshore oil or gas production or mineral extraction, as applicable;
     
  2. Any financial or economic considerations that may affect a proposed assignee and its ability to comply with the terms of a lease;
     
  3. Any information concerning the proposed assignee’s compliance or noncompliance with other contractual obligations to the state or any other party; and,
     
  4. Any record of noncompliance with any other laws or regulations.

FISCAL EFFECT:

No additional SCL costs.

COMMENTS:

1. Purpose. According to the bill's sponsor and member of the SCL, State Controller Betty T. Yee, the factors in this bill are already the criteria the SLC uses for reviewing an application to assign, transfer or sublet an oil or gas lease. This bill codifies those factors.
2. Background. Since 1938, the SLC has had jurisdiction over the leasing of oil and gas from offshore state lands. Between 1938 and 1968, over 50 offshore oil and gas leases were issued by the SLC. In a manner common to most oil and gas leases, the leases that the SLC issued were either devoid of a fixed end date or were subsequently amended to remove an end date. The lease terms typically provide that the leases last as long as oil and gas is being produced in paying or commercial quantities. Once production ceases, the leases are to be quitclaimed back to the SLC.
   

Two August 1968 leases, one to Continental Oil Company and the other to Standard Oil Company, were the last new offshore oil and gas leases that the SLC entered into prior to the January 1969 Santa Barbara oil spill. Since then, the SLC has not entered into any new offshore oil and gas leases.

There are currently 15 oil and gas leases producing and nine that are not. These leases can be assigned or transferred to different oil companies with SLC approval. SLC does not have any record of a request to sublease in the last 20 years. There is no evidence that SLC has denied any assignments or transfers in the past. However, SLC does evaluate whether the assignment or transfer is in the best interest of the state and whether the new assignee will be able to comply with the terms of the lease.

Analysis Prepared by: Jennifer Galehouse / APPR. / (916) 319-2081

Date of Hearing: April 17, 2017

ASSEMBLY COMMITTEE ON NATURAL RESOURCES

Cristina Garcia, Chair

ABPCA Bill Id:AB 1472 (

Author:Limón) – As Amended Ver:April 4, 2017

SUBJECT: Public lands: assignments and transfers: oil, gas, and mineral leases

SUMMARY: Authorizes the State Lands Commission (SLC), when considering the approval of an assignment, transfer, or sublet of an oil and gas lease, to consider whether a proposed assignee is likely to comply with the provisions of the assigned, transferred, or sublet lease for the duration of the lease term.

EXISTING LAW:

1. Establishes, pursuant to the California Coastal Sanctuary Act of 1994 (AB 2444, O’Connell, Chapter 970, Statutes of 1994) (CCSA), the California Coastal Sanctuary (Sanctuary), which includes all state waters subject to tidal influence west of the Carquinez Bridge, except oil or gas leases in effect on January 1, 1995, unless the lease is deeded or otherwise reverts to the state after that date.
2. Prohibits in most cases, a state agency or state officer from entering into any new lease for the extraction of oil or gas from the Sanctuary.
3. Authorizes the SLC to enter into any lease for the extraction of oil or gas from state-owned tide and submerged lands in the Sanctuary if the SLC determines that those oil or gas deposits are being drained by means of producing wells upon adjacent federal lands and the lease is in the best interest of the state.
4. Authorizes the SLC to adjust the boundaries of an existing offshore oil and gas lease to encompass all of an oil and gas field partially contained in the lease.
5. Allows all or any part of the lands under an oil or gas lease to be assigned, transferred, or sublet to any person, association of persons, or corporation, who at the time of the proposed assignment, transfer, or sublease, possesses the qualifications required by the law.
6. Requires SLC approval for any assignment, transfer, or sublet of a lease. Requires the assignee, transferee, or sublessee to be bound by the same terms of lease the original lesee was bound to.
   

THIS BILL:

1. Authorizes SLC, when considering the approval of an assignment, transfer, or sublet of an oil and gas lease, to consider whether a proposed assignee is likely to comply with the provisions of the lease for the duration of the lease term.
2. Specifies the factors SLC may consider when determining approval of an assignment, transfer, or sublet of a lease to include all of the following:
   1. The proposed assignee’s prior experience with offshore oil production;
      
   2. Any financial or economic considerations that may affect a proposed assignee and its ability to comply with the terms of a lease;
      
   3. Any information concerning the proposed assignee’s compliance or noncompliance with other contractual obligations to the state or any other party; and,
      
   4. Any record of noncompliance with any other laws or regulations.

FISCAL EFFECT: Unknown

COMMENTS:

1. Background. The Legislature has a long history of excluding areas from leasing for offshore oil and gas development. Beginning in 1921, and many times since, the Legislature has enacted laws that set aside offshore areas where oil and gas leasing is generally prohibited. The 1921 Leasing Act prohibited the issuance of any prospecting permits or leases within one mile of any municipality. The 1921 Act was amended in 1929 to prohibit the issuance of any new lease in offshore state waters. Between 1938 and 1955, leases could only be issued by the SLC if drainage of the state’s oil and gas could be shown. In 1955, the Legislature authorized new oil and gas leases in state offshore waters but has steadily increased the area that is closed to these leases. Finally, in 1994, the CCSA removed all state lands underlying the Pacific Ocean from the SLC’s oil and gas general leasing authority. The CCSA contains two limited exceptions that allow the SLC to approve new offshore oil and gas production in state waters. One exception is if the SLC determines that state oil or gas deposits are being drained by means of producing wells upon adjacent federal lands and a new oil and gas lease is in the best interests of the state. The other exception allows the SLC to adjust the boundaries of an existing offshore oil and gas lease to encompass all of an oil and gas field partially contained in the lease.
   
2. SLC and Offshore Oil. Since 1938, the SLC has had jurisdiction over the leasing of oil and gas from offshore state lands. Between 1938 and 1968, over 50 offshore oil and gas leases were issued by the SLC. In a manner common to most oil and gas leases, the leases that the SLC issued were either devoid of a fixed end date or were subsequently amended to remove an end date. The lease terms typically provide that the leases last as long as oil and gas is being produced in paying or commercial quantities. Once production ceases, the leases are to be quitclaimed back to the SLC.
   

Two August 1968 leases, one to Continental Oil Company and the other to Standard Oil Company, were the last new offshore oil and gas leases that the SLC entered into prior to the January 1969 Santa Barbara oil spill. The spill was the result of a well drilling blow-out at an offshore platform located in the federal outer continental shelf (OCS) off the coast of Santa Barbara County. The cause was inadequate protective wellpipe casing. The event lasted 11 days and spilled between 80,000 and 100,000 barrels of crude oil. Two hundred square miles of ocean and 35 miles of California coastline were oiled and thousands of animals were killed.

At its February 1969 meeting, the SLC deferred the acceptance of outstanding bids for new leases and subsequently deferred deadlines for additional drilling from existing leases. Since then, the SLC has not entered into any new offshore oil and gas leases. Since 2001, the SLC adopted several resolutions opposing the resumption or expansion of federal offshore oil and gas lease sales in the OCS. The foundation for each resolution was the same: that the danger of an oil spill like the 1969 Santa Barbara oil spill was too high and that oil development and potential spills would adversely affect fishing, tourism, and environmental, recreational, economic, scenic, and other values. The resolutions are also based on and expressive of the state’s policy and practice of not issuing new offshore leases. Further, the SLC’s staff has been proactive in obtaining quitclaims of existing offshore oil and gas leases from oil companies back to the state.

There are currently 15 oil and gas leases producing and nine that are not. These leases can be assigned or transferred to different oil companies with SLC approval. SLC does not have any record of a request to sublease in the last 20 years. There is no evidence that SLC has denied any assignments or transfers in the past. However, SLC does evaluate whether the assignment or transfer is in the best interest of the state and whether the new assignee will be able to comply with the terms of the lease. This bill codifies the factors for SLC to consider when making the determination whether a proposed assignment, transfer, or sublet of a lease is appropriate. According to the State Controller (a member of the SLC), the factors in the bill are already the criteria for reviewing an application to assign, transfer, or sublet an oil and gas lease.

1. Amendments. The author and committee may wish to consider minor technical amendments.
   

REGISTERED SUPPORT / OPPOSITION:

Support

State Controller Betty Yee (Sponsor)
Sierra Club California

Opposition

None on file

Analysis Prepared by: Michael Jarred / NAT. RES. /