Wells Fargo Bank v. Goldzband (53 Cal. App. 2d 596, 1997)

Opinion

VARTABEDIAN, Acting P. J.

We are called upon to interpret certain provisions of the Public Resources Code aimed at determining responsibility for the expeditious cleanup of nonfunctioning oil wells.

Procedural History

On February 14, 1995, the Supervisor of the California Division of Oil and Gas (Oil and Gas Supervisor) ordered Wells Fargo Bank (plaintiff), as mineral rights owner, to plug and abandon nine oil wells in Raisin City, Fresno County, pursuant to Public Resources Code sections 3226 and 3237. The order also directed plaintiff to remove debris and other equipment as well as clean up the well sites. Based on the provisions of section 3350, plaintiff appealed the order to the Director of the Department of Conservation (hereafter Director) on February 23, 1995. The Director conducted a hearing de novo as required by section 3351 on April 3, 1995. On May 11, 1995, pursuant to section 3353, the Director issued a decision affirming the order.

Plaintiff filed a petition in Fresno County Superior Court on May 22, 1995, for a “Writ of Administrative Mandamus” under Code of Civil Procedure section 1094.5 or, in the alternative, a “Writ of Certiorari” under section 3354, ordering the Director to set aside the order. The court conducted a hearing on September 8, 1995, to consider plaintiff’s petition. On November 21,1995, the court denied the petition. After concluding a writ of certiorari under section 3354 was the appropriate means of judicial review of the Director’s decision, with review limited to those issues set out in section 3355, the court held plaintiff had failed to show any basis for granting the writ of certiorari. In addition, the court found that even if judicial review were appropriate under Code of Civil Procedure section 1094.5, plaintiff failed to establish it was entitled to a writ of mandamus.

Timely appealing the decision of the trial court, plaintiff raises three contentions: (1) the Director erred in issuing the order to plaintiff because it was neither an owner nor an operator of the wells as defined in the relevant statutes; (2) the order should not be enforced against plaintiff as a mere mineral estate owner because it contravenes public policy; and (3) the Director’s unreasonable delay in ordering plugging and abandonment of the wells precludes enforcement against plaintiff as a matter of equity. We affirm.

Factual History

On January 7, 1946, the Citizens National Trust & Savings Bank of Los Angeles (Citizens Bank) granted to Fernando Drilling Co. (Fernando) an oil and gas lease for a certain tract of land in Fresno County that became part of the Raisin City oil field. The lease was for 20 years and thereafter for so long as oil and gas was produced from the land. Under the terms of the lease, Fernando agreed to pay Citizens Bank a royalty of one-seventh of the market value of the oil produced. Fernando assigned the lease to D.H. Graham on January 21, 1946. Production of oil from the lease began in May 1946. A total of nine wells were drilled which produced oil. These wells continued to produce oil until approximately October 1985, although not all the wells continued to operate during this entire period. One well became idle in 1967; another in 1976; a third in 1977; and a fourth in 1983. The remainder of the wells were idled between September and November 1985. None of the wells were abandoned and plugged in accordance with the procedures prescribed in section 3208.

Citizens Bank’s interest as lessor in the Raisin City oil field passed to Crocker Bank in November 1963 when the two banks merged. In March 1973, Crocker Bank severed the mineral estate from the surface estate and sold the surface estate to the Haupts, a husband and wife.

Between the time the oil and gas lease was assigned and the time all of the wells became idle, it passed through several individuals and entities and was divided into multiple shares. Oil Production Management, Inc., Oklahoma (OPMI) obtained its interest in the lease on July 1, 1983.

On April 1, 1985, OPMI transferred its operating interest iti the leasehold to Oil Production Management, Inc., California (OPMI California). On May 30, 1986, Crocker Bank merged with plaintiff, which became Crocker Bank’s successor in interest and lessor of OPMI’s lease. On August 22, 1985, the deputy supervisor of the Division of Oil and Gas (hereafter Division) issued a notice of violation to OPMI concerning one of the wells operated by it on the leasehold. OPMI did not respond to the notice and did not correct the problem. On April 1, 1986, OPMI California transferred the operating interest in the leasehold back to OPMI. On May 5, 1986, the deputy supervisor issued a second notice of violation to OPMI, for the same well. There is no evidence OPMI ever responded to this notice.

On June 19,1986, OPMI voluntarily filed for bankruptcy under chapter 11 of the Bankruptcy Code. At the time it filed for bankruptcy, it owned between 78 and 81 percent of the working interest in the leasehold, with the remaining interest being owned by six other individuals and entities. At the time it filed for bankruptcy, OPMI estimated its assets as $936,000 and its liabilities as $1,012,020. On August 14, 1986, OPMI filed an application in the bankruptcy court for an extension of time to either assume or reject certain nonresidential leases, including the leasehold in the Raisin City oil field. The court granted the request, extending the time for OPMI to either assume or reject the leases until October 17, 1986. On February 11, 1987, OPMI filed a notice of auction sale of the Raisin City oil field leasehold. Since OPMI represented at the time of the offering for sale it owned 89 percent of the leasehold, it must be assumed OPMI had not released its interest as of that date. However, on November 19, 1987, OPMI’s attorney, Robert Yaspan, sent a letter notifying the Division that OPMFs right to the leasehold terminated on or about August 20, 1986, citing section 365(d)(4) of the Bankruptcy Code.

Not convinced that all of the leasehold had been released as a result of the bankruptcy proceeding, the Division wrote to Yaspan on April 25, 1988, concerning the status of the other individuals who allegedly had an interest in the leasehold: Yaspan, Phillip Stephen, and Robert Heck. Yaspan responded that his interest in the leasehold and those of the other individuals named had been transferred to OPMI in 1986. The evidence substantiates that Stephen and Heck did transfer their interests to OPMI in 1986. However, there is no evidence Yaspan transferred his interest to OPMI. The records of the Fresno County Assessor indicate that as of March 30, 1995, Yaspan, along with five other individuals, still held an interest in the leasehold.

On February 10,1992, the Division sent a letter to plaintiff which set forth the Division’s position that OPMI had rejected the leasehold and, therefore, was no longer responsible for any cleanup or taxes on the property. Sometime in the fall of 1993, the Division began to discuss with plaintiff the responsibility for abandoning the nine wells on the leasehold. The Division and representatives of plaintiff had meetings on the subject in April, May, and June of 1994. Initially, plaintiff indicated it intended to abandon the wells as requested by the Division. In August 1994, plaintiff notified the Division it was in the process of attempting to identify previous operators of the wells and that it would then ask the Division to hold those individuals or entities primarily responsible for abandoning the wells. Subsequently, at the request of plaintiff, on November 7, 1994, the Division demanded that the six individuals and entities who retained an interest in the leasehold abandon the wells. The Division received three responses to the letters—two of them denying any responsibility for the wells and the third informing the Division that the holder of the leasehold was deceased.

Based on the information received, the Division concluded the operator of record for the nine wells, OPMI, was bankrupt and there was no other individual or entity which held an operating interest in the leasehold. Because of this conclusion, the Division did not pursue OPMI or the other individuals or entities further. On February 14, 1995, the Division issued Order No. 678 to plaintiff to plug and abandon the nine wells on the leasehold in accordance with the specifications outlined in that order. On the date the Director conducted the hearing on plaintiff’s appeal, April 3, 1995, the Division was unaware that OPMI’s chapter 11 bankruptcy proceeding closed on February 10, 1995, and OPMI was again doing business in California.

Discussion

I. Duty to Plug the Wells.

The issue before this court is substantially one of law. There is no real dispute concerning the facts leading up to the issuance of the order to plaintiff to plug and abandon the nine wells. Consequently, we conduct an independent review of the decision of the superior court. (20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216, 271 [32 Cal.Rptr.2d 807, 878 P.2d 566].)

Plaintiff claims the court erred when it upheld the Director’s decision that plaintiff was responsible for plugging and abandoning the wells in question. The contention boils down to whether plaintiff was an “owner or operator” of the wells as those terms are used in the provisions of the Public Resources Code that deal with oil and gas wells. In order to fully understand the nature of the issue, it is essential to consider the relevant statutes in detail.

A. California’s statutory scheme.

Division 3 of the Public Resources Code pertains to oil and gas. Article 4 of division 3 addresses the regulation of the operation of oil and gas wells within the State of California. Article 4 contains the requirements with which an individual or entity must comply in order to drill and operate an oil or gas well, including: designation of an agent (§ 3200); notice of acquisition of an interest in a well (§ 3202); notice of intent to drill (§ 3203); record keeping (§§ 3210-3215); and the filing of status and production reports (§§ 3216, 3227). Also included in article 4 are several sections that deal with the plugging and abandoning of oil and gas wells. (§§ 3203, 3208, 3208.1, 3230, 3232, and 3237.) “Plug” and “abandon” are terms of art which are used to describe the procedure that must be followed when a well is no longer used, to ensure that it does not pose a hazard to safety or the environment. “. . . A well is properly abandoned when it has been shown, to the satisfaction of the supervisor, that all proper steps have been taken to isolate all oil-bearing or gas-bearing strata encountered in the well, and to protect underground or surface water suitable for irrigation or farm or domestic purposes from the infiltration or addition of any detrimental substance and to prevent subsequent damage to life, health, property, and other resources.” (§ 3208.)

The Oil and Gas Supervisor may direct that deserted wells be abandoned. Suspension of drilling operations and removal of drilling machinery for a period of six months is prima facie evidence the well has been deserted. Further, after April 1, 1973, removal of production equipment or facilities is prima facie evidence of desertion after the lapse of two years. (§ 3237 as it provided at times pertinent to this case.) As is the case with many of the other requirements of article 4, the responsibility to comply with an order under section 3237 to abandon a well lies with the “owner or operator.” (§ 3226.) However, the only definitions of the terms “owner” and “operator” are contained in article 1, sections 3009 through 3011. Section 3009 stated at times pertinent to this case: “ ‘Operator’ means any person drilling, maintaining, operating, pumping, or in control of any well.” Former section 3010 provided: “ ‘Owner’ includes ‘operator’ when any well is operated or has been operated or is about to be operated by any person other than the owner.” Former section 3011 stated: “ ‘Operator’ includes ‘owner’ when any well is or has been or is about to be operated by or under the direction of the owner.”

As found in article 1, the definitions of owner and operator, critical to resolution of this case, leave several questions largely unanswered. Not the least of these is whether a holder of the mineral rights to property who grants a sole and exclusive right to drill for oil and gas to a third person qualifies as an “owner” or “operator” of the wells for purposes of the compliance provisions of article 4. Second, and related to that question, is the issue of what point in time the status of an individual or entity with respect to a well is determined. For example, if a well has been deserted and ordered plugged and abandoned by the Division, at what point in time is the status of an individual or entity as an owner or operator determined: when a well ceases production and is deserted or when an order is issued by the Division?

The definitions of owner and operator contained in section 3009 and former sections 3010 and 3011 clearly envision someone who exercises some form of control over or active involvement in the drilling, maintaining or operation of the well. This conclusion is borne out by consideration of the other provisions of article 4. It would be illogical to impose upon someone who has no authority or responsibility for a well the duty to: file a notice of intent to drill (§ 3203); post an indemnity bond prior to engaging in drilling (§3204); maintain a log of drilling operations (§3211); employ specific safety devices on wells and drilling techniques (§§ 3219, 3220); file monthly production reports (§ 3227); or abandon a well in accordance with the instructions of the Division (§§ 3228, 3229, 3230, and 3232).

The oil and gas lease executed by plaintiff’s predecessors in interest granted the lessee “a profit a prendre, a right to remove a part of the substance of the land.” (Dabney-Johnston Oil Corp. v. Walden (1935) 4 Cal.2d 637, 649 [52 P.2d 237].) This is an interest in real property in the nature of an “incorporeal hereditament.” (Ibid.) The lessor retained the right to receive oil royalties as well as “a reversionary interest in the right to drill for and produce oil, dependent upon the termination of the existing leasehold . . . .” (Id. at p. 651.)

In the present case, the lessor did not retain any right to control or be responsible for the operation of any of the wells on the property. The terms of the lease granted to the lessee the sole and exclusive right “to drill for, produce, extract, take and remove oil, gas, asphaltum and other hydrocarbons . . . .” The lease also specifically provides: “The possession by the Lessee of said land shall be sole and exclusive, excepting only that the Lessor reserves the right to occupy said land or to lease the same for agricultural, horticultural, or grazing uses, which uses shall be carried on subject to, and with no interference with, the rights or operations of the Lessee hereunder.” It further provides: “All the labor to be performed and materials to be furnished in the operations of the Lessee hereunder shall be at the cost and expense of the Lessee and the Lessor shall not be chargeable with or liable for, any part thereof; and the Lessee shall protect said land against liens of every character arising from his operations thereon.”

The lease placed upon lessees the responsibility for maintaining the production logs for any wells operated on the leasehold. The lease did not reserve to the lessor any authority to prescribe drilling or operating procedures or for the lessor to enter the leasehold to ensure compliance with the provisions of the Public Resources Code. Consequently, while the lease was in effect, neither plaintiff nor any of its predecessors in interest could exercise any control over the operation of the wells on the leasehold. In fact, any attempt by the lessor to enter the property to perform any of the actions required by the statute could be considered an interference with the lessee’s right to enjoyment of the lease. (See Cassinos v. Union Oil Co. (1993) 14 Cal.App.4th 1770, 1780 [18 Cal.Rptr.2d 574] [“. . . the right of the surface owner is subordinate to an oil and gas lessee, and he may not affect the mineral estate owner’s right so as to prevent his enjoyment thereof or unreasonably interfere therewith”]; Siemon v. Russell (1961) 194 Cal.App.2d 592, 597 [15 Cal.Rptr. 218] [when lessors surrender rights with respect to property for consideration, the only way they can regain those rights is upon termination or renegotiation of the lease]; Auster Oil & Gas, Inc. v. Stream (5th Cir. 1985) 764 F.2d 381, 390, cert. den. 488 U.S. 848 [109 S.Ct. 129, 102 L.Ed.2d 102 [lessor’s right to enter leasehold to observe operations did not confer right to interfere with operation of the wells]; 1 Williams, Oil and Gas Law (1959) § 202.1, p. 21.)

Because plaintiff’s predecessor in interest received financial benefit from the lease and retained a reversionary interest in the leasehold, the Director claims plaintiff is an “owner” or “operator” of the wells for purposes of the requirements of sections 3226 and 3237. He reaches this conclusion by first focusing on the fact that, at the time the order was issued to plug and abandon the well, the leasehold had allegedly reverted to plaintiff. The Director claims, therefore, plaintiff was the owner and “inchoate operator” of the wells on the leasehold because it retained the exclusive right to drill and produce oil or gas on the property. The Director then argues section 3251 supports this conclusion. The Director claims section 3251 clarifies the definitions of “owner" and “operator” contained in section 3009 and former sections 3010 and 3011 by making it clear they would include any surface or mineral rights owner who obtained substantial financial gain from the well. The Director contends, therefore, the principles of statutory construction support his conclusion that plaintiff was an owner and operator of the wells responsible for their proper abandonment. Our review of this matter tells us that reaching this conclusion is not quite that simple.

Article 4.2 of division 3 of the Public Resources Code was enacted in 1976 to give the state the regulatory power to abandon or reabandon oil and gas wells that constitute public nuisances. (§ 3250.) The cost for abatement of the public nuisance caused by these wells is to be charged to producers of oil and gas in the state. (Ibid.) However, the maximum amount that can be expended pursuant to the authority of article 4.2 in any fiscal year is $500,000. (§ 3258.)

Section 3251 further conditions exercise of the authority to abate the public nuisance created by a “hazardous well” on the absence both of a solvent “operator" and of a surface or mineral estate “owner” who derived a substantial benefit from the well.

“For the purposes of this article, an oil or gas well is a ‘hazardous well’ if the well has been determined by the supervisor to presently pose a danger to life, health, or natural resources and subdivisions (a) and (b) of this section apply. Also, for the purposes of this article, an oil or gas well is an ‘idle-deserted well’ if Section 3237 and subdivisions (a) and (b) of this section apply.

“(a) Regulatory abatement of such a public nuisance is not possible because the last operator that had an economic interest in, or received any benefit from, the well is deceased, defunct, or no longer in business in this state.

“(b) The present surface owner and mineral estate owners derived no substantial financial gain from the well. In making the determination respecting financial gain, the supervisor may seek such information and require such proof of these matters as may be desirable or necessary.” (§ 3251 as it provided at times pertinent hereto.)

Although it does not specifically so state, implicit in section 3251, subdivision (b) is the assumption that an owner of the surface or mineral estate who derived substantial financial gain from the operation of a well is an “owner” who may be required to abandon or reabandon it if the well is deemed hazardous or idle-deserted. Thus, argues the Director, in order to harmonize section 3251 with sections 3226 and 3237, the term “owner or operator” must be read to include a mineral estate owner, such as plaintiff, who derived substantial benefit from the wells. This interpretation is consistent with an apparent intent by the Legislature to restrict the use of the limited resources available to implement article 4.2 to those instances where it is not possible to place the cost on the parties responsible for the nuisance and who derived a benefit from the it.

It is true the interpretation of “owner or operator” proposed by the Director would harmonize sections 3251, 3226 and 3237. However, the interpretation would also cause some incongruous results. If this interpretation of section 3251 is taken to its logical conclusion, a surface or mineral rights owner could be ordered to abandon a well under sections 3237 and 3226 even if the property was still the subject of a valid lease. This would be true even if the surface or mineral rights owner had not retained any right to direct the operation of the well or to perform any function required by the state. In other words, the Director’s interpretation would impose upon a surface or mineral rights owner the responsibility to perform acts which it had no right to do. (See Gannon v. Mobil Oil Co. (10th Cir. 1978) 573 F.2d 1158, 1164, cert. den. 439 U.S. 867 [99 S.Ct. 192, 58 L.Ed.2d 177] [lessee has the duty to plug oil wells upon cessation of operations even over the objection of the lessor].) Because of this potential incongruity and the lack of cases interpreting these statutes, we find it necessary to explore more fully.

B. Statutory scheme of other oil producing states.

The problem of plugging and abandoning oil or gas wells for which no one wishes to claim responsibility is not unique to California. The problem is a sizable one for the eastern states where the United States oil and gas industry originated and statutes requiring idle wells to be properly plugged and abandoned lagged far behind the development of the industry. It has been estimated that New York has 41,000 orphan wells and that the number in Pennsylvania may be as high as 200,000. (See Orphans, Foundlings and Wards of the State, supra, § 19.01.)

The statutory schemes of the states that have enacted abandonment and plugging statutes can be divided into two broad categories: lease development schemes and well development schemes. (See Orphans, Foundlings and Wards of the State, supra, § 19.11.) In a lease development scheme, “owner” is defined as someone “who has the right to drill a tract or pool and appropriate the production for itself or others.” (Ibid.) In other words, in states that have adopted a lease development scheme, the definition of the person or entity responsible for abandoning and plugging a well focuses on the right to develop based on ownership of the lease or land. New York and Ohio are states which have adopted a lease development scheme.

In New York, the primary liability for plugging a well: “shall be to the operator unless a contract for the production, development, exploration or other working of the well, to which the lessor or other grantor of the oil and gas rights is a party, places the liability on the owner or on the owner of another interest in the land on which the well is situated.” (N.Y. Envtl. Conserv. Law, § 23-0305.) However, like California, ultimately the “owner or operator” of a well in New York is responsible for the plugging of wells. (N.Y. Comp. Codes R. & Regs., tit. 6, §555.1.) “Operator” is defined as “any person who is in charge of the development of a lease or the operation of a producing well.” (N.Y. Comp. Codes R. & Regs., tit. 6, § 550.3.) “Owner” is defined as “any person who has the right to drill into and produce from a pool and to appropriate the oil or gas he produces therefrom either for himself or others or for himself and others.” (Ibid., italics added.)

In Ohio, the responsibility for plugging a well falls upon the owner of a well. (Ohio Rev. Code Ann., §§ 1509.13, 1509.14.) “Owner” is defined as the “person who has the right to drill on a tract or drilling unit and to drill into and produce from a pool and to appropriate the oil or gas that he produces therefrom either for himself or for others.” (Ohio Rev. Code Ann., § 1509.01 (k).)

States such as New York and Ohio, which have adopted a lease development scheme “take an expansive approach to plugging liability . . . .” (Orphans, Foundlings and Wards of the State, supra, § 19.11.) This is apparent from the decision of the Ohio Court of Appeals in Houser v. Brown (1986) 29 Ohio App.3d 358 [505 N.E.2d 1021]. Appellee Brown, acquired an oil and gas lease by assignment as part of a real estate transaction in 1979. When he acquired the lease to the land, there were already wells on it that had not produced since 1973. (Id., 505 N.E.2d at p. 1024.) The division of oil and gas which was responsible for monitoring such wells was aware of this fact since 1973. Brown assigned part of his drilling rights to a third person in February 1980. On September 3, 1983, the owners of the property, the Herolds, disconnected the third person’s surface equipment from the wells. (Ibid.) Brown canceled his oil and gas lease on September 18, 1983. An order was issued by the division of oil and gas on January 18, 1984, ordering Brown to plug the wells or put them into production. (Id. at p. 1022.) When the division of oil and gas found out Brown had canceled his lease, it issued another order to Sharon Herold as owner of the premises to plug the wells. (Ibid.)

Both Herald and Brown appealed the orders. The oil and gas board of review affirmed the order with respect to Herald, but reversed it with respect to Brown, finding he was not the “owner” of the wells at any relevant time. (505 N.E.2d at p. 1022.) It held Herald was the “owner” at a relevant time—when the division of oil and gas learned of the inability of the wells to produce and the necessity of plugging the wells. (Id. at p. 1023.) The court of common pleas affirmed the board’s decision and the chief of the division of oil and gas appealed the decision with respect to Brown. (Id. at p. 1023.) Therefore, the decision really involves whether Brown, as a subsequent assignee of the oil and gas lease, can be held responsible to plug wells which he did not drill and which he “inherited” with the lease.

The court held it did not matter that Brown was not the owner of the wells at the time the division of oil and gas issued its order to plug the wells. It held the duty to plug was a continuing duty and once the well became incapable of producing, the duty to plug attached. (505 N.E.2d at p. 1024.) “An owner’s later transfer of the right to produce does not absolve that person of the continuing obligation to plug the well. Therefore, assuming the subject wells were incapable of production in commercial quantities when Brown was assigned the lease in 1979, Brown had a duty at that time to plug the wells. Brown could not escape that duty by cancelling the lease prior to the chief’s January order.” (Ibid.) The court held a new lessee or new owner may inherit the duty to plug if he or she acquires a well which is incapable of producing. “The plain language of the statute requires this result, as does the policy of requiring the plugging of unproductive wells. This result is further bolstered by the reality of the oil and gas business, where many wells were drilled during the turn of the century. Several of these companies are now out of business and to hold only the original ‘owner’ responsible for plugging the nonproductive wells would defeat the purpose of the statute.” (Ibid.)

Since Herald did not appeal, the case does not discuss her duty as the landowner. There is no way to tell if she ever actually controlled the well prior to the time Brown released the lease. However, the court’s comments in dicta concerning Herald are very broad, and we can only assume that court concluded Herald was responsible to plug merely because she ultimately came into possession of the wells by release of the lease by Brown. “The issue as to whether Herald or Brown should bear the expense of plugging the wells is not before us, this being a private matter between them. However, both have a statutory duty to the public to plug the wells. For protection of the public interest, it makes no difference who (Brown or Herald) plugs the wells; the important issue is that one does so promptly. The chief correctly ordered both to plug the wells.” (505 N.E.2d at p. 1024.)

In states employing a well development scheme, “operator” is defined as the “person who locates, drills, operates, or abandons any well.” (Orphans, Foundlings and Wards of the State, supra, § 19.11.) States that employ this scheme have a more restrictive view of who is responsible for plugging a well. (Ibid.) Three states which embrace the well development scheme of liability are West Virginia, Pennsylvania, and Texas.

In West Virginia, the responsibility for plugging upon cessation of operation of a well is on the “well operator." (W.Va. Code, § 22-6-24.) “Well operator” is defined as “any person or persons, firm, partnership, partnership association or corporation that proposes to do or does locate, drill, operate or abandon any well . . . .” (W.Va. Code, § 22-6-1, subd. (w).) The term “owner” “shall include any person or persons, firm, partnership, partnership association or corporation that owns, manages, operates, controls or possesses such well as principal, or as lessee or contractor, employee or agent of such principal." (W.Va. Code, § 22-6-1, subd. (l).) Both definitions clearly narrow the scope of the definition of owner or operator to a party that actually operates a well or directs its operation, rather than focusing on the right of the party vis-á-vis a leasehold or specific parcel of property.

At first blush, Pennsylvania’s statutory scheme identifying the parties who are responsible for plugging idle wells seems to be very similar to that of California. “Upon abandoning any well, the owner or operator thereof shall plug the well in a manner prescribed by regulation of the department. . . .” (Pa. Stat. Ann., tit. 58, § 601.210.) However, the Pennsylvania statutes are much less ambiguous than those of California for two reasons. First, Pennsylvania specifically defines who qualifies as an “owner or operator.” An “owner” is defined as: “[a]ny person who owns, manages, leases, controls or possesses any well or coal property; except for purposes of sections 203(a)(4) and (5) and 210 [the statute dealing with plugging wells] the term ‘owner’ shall not include those owners or possessors of surface real property on which the abandoned well is located who did not participate or incur costs in the drilling or extraction operation of the abandoned well and had no right of control over the drilling or extraction operation of the abandoned well.” (Pa. Stat. Ann., tit. 58, § 601.103.) A “well operator” or an “operator” is defined as the “person designated as the well operator or operator on the permit application or well registration. Where a permit or registration was not issued, the term shall mean any person who locates, drills, operates, alters or plugs any well or reconditions any well with the purpose of production therefrom.” (Ibid.)

Second, the Pennsylvania statute requiring plugging of idle wells contains a further limitation on the class of owners or operators who are responsible for plugging. “Where the department determines that a prior owner or operator received economic benefit, other than economic benefit derived only as a landowner or from a royalty interest, subsequent to April 18, 1979, from an orphan well or from a well which has not been registered, such owner or operator shall be responsible for the plugging of the well.” (Pa. Stat. Ann., tit. 58, § 601.210, subd. (a).) Thus, a mineral rights owner, such as plaintiff, who leased the oil and gas rights to a third party and retained no interest other than the right to receive royalties during the existence of the lease and a reversionary right thereafter, would not be held responsible to plug an idle Pennsylvania well.

Texas’s statutory scheme to deal with orphan wells is similar to that of Pennsylvania. The duty to plug a well in Texas rests primarily with the operator. (Tex. Nat. Res. Code Ann., § 89.042, subd. (a).) If the operator cannot be found or is insolvent, the responsibility to plug the well falls upon the nonoperators. (Tex. Nat. Res. Code Ann., § 89.042, subd. (b).) Prior to 1983, if tihe operator and nonoperator (defined below) could not be found or were insolvent, the landowner could be held responsible to plug a well. But, this provision was repealed in 1983. (Tex. Nat. Res. Code Ann., § 89.042, subd. (c).)

An “operator” in Texas is “a person who is responsible for the physical operation and control of a well at the time the well is about to be abandoned or ceases operation.” (Tex. Nat. Res. Code Ann., § 89.002, subd. (a)(2).) Thus, an operator who transfers an unplugged well cannot absolve himself of responsibility merely by transferring it to another. Only if the well is in compliance with state regulations at the time it is sold and the purchaser specifically identifies the idle well and accepts responsibility for it, is the former person no longer considered the “operator” of the well for the purpose of determining plugging responsibility. (Ibid.) A “nonoperator” is “a person who owns a working interest in a well at the time the well is required to be plugged pursuant to commission rules and is not an operator as defined in Subdivision (2) . . . .” (Tex. Nat. Res. Code Ann., § 89.002, subd. (a)(3).) However, the definitions of “operator” and “nonoperator” do not include “a royalty interest owner or an overriding royalty interest owner.” (Tex. Nat. Res. Code Ann., § 89.002, subd. (b).)

Thus, the Texas statutory scheme very narrowly defines the class of persons who are responsible for a well. Not only does it incorporate the well development scheme, but restricts the liability of subsequent “operators.” A subsequent owner of an idle well in Texas is not responsible for plugging it unless responsibility for it has been specifically acknowledged and accepted.

The operation of the provisions of the Texas statutes is demonstrated by the decision of the Court of Civil Appeals of Texas in Railroad Commission of Texas v. American Petrofina Co. of Texas (Tex.Civ.App. 1978) 576 S.W.2d 658. In 1973, American Petrofina (appellee) received an interest in a mineral rights lease by assignment. On the leasehold was an operating gas well. There also existed a well which had been completed in 1962 and had not operated since 1966. (Id. at pp. 658-659.) When the appellee obtained the interest in the leasehold, it had previously passed through several other lessees. {Id. at p. 658.) Appellee never used the idle well, did not intend to do so, and, in fact, was unaware of its existence. {Id. at p. 659.) Relying on the definition of “operator” in the Texas code, the court held American Petrofina Co. could not be ordered to plug the idle well. “It would strain the English language as well as the statute defining an operator to conclude that appellee is the operator of this well.” {Ibid.)

The American Petrofina decision is a classic example of how a well development scheme assigns responsibility. The responsibility for properly plugging and abandoning a well in a well development scheme state, such as Texas, runs with the particular well; not with the leasehold or property on which it is located. Had the American Petrofina case arisen in Ohio, which embraces a lease development scheme, there would undoubtedly have been a different result. Consistent with Houser v. Brown, supra, 505 N.E.2d 1021, the appellee, as assignee of the leasehold in Ohio, would have been responsible to plug regardless of whether he ever operated the well or even knew of its existence.

C. Legislative intent.

Against the backdrop of the statutory schemes of other states, we must determine the intent of the Legislature when it enacted the statutes requiring the plugging and abandoning of idle-deserted wells. (People v. Woodhead (1987) 43 Cal.3d 1002, 1007 [239 Cal.Rptr. 656, 741 P.2d 154] [“Our analysis starts from the fundamental premise that the objective of statutory interpretation is to ascertain and effectuate legislative intent.”].) In performing this function we first look to the words used in the statute. {Ibid.) “When the language is clear and unambiguous, there is no need for construction.” {Id. at pp. 1007-1008.) If the language is ambiguous, the court must consider extrinsic evidence of the Legislature’s intent, including the ostensible “public policy, contemporaneous administrative construction, and the statutory scheme of which the statute is a part. [Citations.]” (Id. at p. 1008.)

Considering the provisions of articles 4 and 4.2 objectively, we initially note they are not a model of clarity. The definitions of “owner” and “operator” contained in section 3009 and former sections 3010 and 3011 are redundant, overlapping and ambiguous. There is no indication in the statutes if these definitions were intended to include a mineral rights lessor or a surface rights owner. Additionally, there is no statute in either article which expressly states a mineral rights owner or surface rights owner who receives substantial financial benefit from the wells can be held responsible for the cost of plugging them. However, this result is implied by the provisions of section 3251. This would lead to the conclusion the Legislature intended to adopt a lease development scheme with respect to assigning responsibility to plug and abandon idle wells. On the other hand, all the other provisions of article 4 describe the duties of the “owner or operator” with respect to a particular well, as opposed to a particular leasehold or tract of land. These provisions, therefore, seem to imply the Legislature intended to adopt a well development scheme. We cannot help but conclude the language of the statutes is ambiguous; we must look elsewhere to determine legislative intent.

One clue to the Legislature’s intent can be obtained by considering the history of the statutes in question. As originally enacted in 1939, section 3226 provided: “Within thirty days after service of an order, pursuant to sections 3224 and 3225, or if there has been an appeal from the order to the board of district commissioners, within thirty days after service of the decision of the board, or if a review has been taken of the order of the board of district commissioners, within ten days after affirmance of the order, the owner shall commence in good faith the work ordered and continue it until completion. If the work has not been commenced and continued to completion, the supervisor shall appoint necessary agents who shall enter the premises and perform the work. An accurate account of the expenditures shall be kept, and the amounts shall be paid from the petroleum and gas fund upon the warrant of the State Controller. Any amount so expended shall constitute a lien against the property upon which the work is done.” (Stats. 1939, ch. 93, §3226, p. 1124, italics added.) In 1979, section 3226 was amended to its present form:

“Within 30 days after service of an order, pursuant to Sections 3224 and 3225, or Section 3237,[] or if there has been an appeal from the order to the director, within 30 days after service of the decision of the director, or if a review has been taken of the order of the director within 10 days after affirmance of the order, the owner or operator shall commence in good faith the work ordered and continue it until completion. If the work has not been commenced and continued to completion, the supervisor shall appoint necessary agents who shall enter the premises and perform the work. An accurate account of the expenditures shall be kept. Any amount so expended shall constitute a lien against real or personal property of the owner or operator pursuant to the provisions of Section 3423.

“Notwithstanding any other provisions of Section 3224, 3225, or 3237, if the supervisor determines that an emergency exists, he may order or undertake such actions as he deems necessary to protect life, health, property, or natural resources.” (Stats. 1979, ch. 322, § 1, p. 1144, italics added.)

The italicized language in the original version of the statute, which remained a part of the statute until 1979, made the owner of the property on which an idle well was located liable for any cost incurred by the state in plugging and abandoning a well, regardless of whether that landowner derived any financial benefit from the operation of the wells. Thus, although the owner of a well, as defined by former section 3010, was responsible to perform the work ordered by the state, the owner of the property could ultimately be held responsible if the state was required to do the work.

The language of section 3226 permitting the placing of a lien against property to pay for plugging and abandoning a well was clearly a matter considered by the Legislature when it enacted article 4.2 in 1976:

“The Legislature hereby finds and declares that certain hazardous[] oil and gas wells, as defined in this article, are public nuisances and that it is essential, in order to protect life, health, and natural resources that such oil and gas wells be abandoned, reabandoned, produced, or otherwise remedied to mitigate, minimize or eliminate their danger to life, health, and natural resources.

“The Legislature further finds and declares that, although the abatement of such public nuisances could be accomplished by means of an exercise of the regulatory power of the state, such regulatory abatement would result in unfairness and financial hardship for certain landowners, while also resulting in benefits to the public. The Legislature, therefore, finds and declares that the expenditure of funds to abate such nuisances as provided in this article is for a public purpose and finds and declares it to be the policy of this state that the cost of carrying out such abatement be charged to this state’s producers of oil and gas as provided in Article 7 . . . .” (§ 3250, as enacted by Stats. 1976, ch. 1090, pp. 4932-4933.)

Further evidence of the concern for the financial impact of section 3226 on landowners is provided by the Department of Conservation’s Enrolled Bill Report on the enactment of article 4.2:

“Another example where it would seem unfair to place a financial burden on the property owner is in the case of landowner who does not own the subsurface mineral rights. The mineral rights owner has the right to enter upon that land to drill a well. The compensation received by the landowner would only be a rental fee for the space occupied by the drilling equipment and any subsequent drilling facility. Under present law, if the operator of that well becomes defunct, the responsibility for abandoning the well would rest with the landowner, even though he had no interest in the well and, in fact, may have objected to its drilling.

“We are trying to emphasize that persons who are not responsible for these old wells on their property or who have not received a substantial economic benefit from the sale of any oil or gas produced from the well should not, in our opinion, be held responsible for the well and subsequent cost of abandonment. It seems only just and fair that the cost for abandonment should be borne by the industry that created the problem.” (Enrolled Bill Memo, to Governor, Assem. Bill No. 4049 (1975-1976 Reg. Sess.) Sept. 16, 1976, pp. 2-3.)

This history of section 3251 suggests that the Legislature intended to narrow the class of persons who would be financially responsible for plugging and abandoning an idled well to those individuals who had an economic interest in it or derived a substantial benefit from it. This purpose is further evident in the amendment of section 3226 in 1979, which limited the property against which a lien could be made to that of the “owner or operator.”

Considering the legislative history of sections 3226, 3237, and 3251 in the context of the entire statutory scheme of which they are a part, it must be concluded that articles 4 and 4.2 incorporate aspects of both a well development scheme and a lease development scheme. To the extent the statutes mandate the “owner or operator” of a well to perform the functions required of an oil and gas producer, it is a well development scheme. To the extent the statutes require those who derive financial benefit from the operation of a well, including a mineral interest owner, to accept financial responsibility for properly plugging and abandoning it, they constitute a lease development scheme. We see no irreconcilable conflict resulting from this dual scheme we construe from the statutes in question.

In order to adopt plaintiff’s argument, we would have to conclude subdivision (b) of section 3251 is meaningless. This would be contrary to a basic tenet of legislative interpretation. When attempting to glean legislative intent “[w]e do not presume that the Legislature performs idle acts, nor do we construe statutory provisions so as to render them superfluous. [Citations.]” (Shoemaker v. Myers (1990) 52 Cal.3d 1, 22 [276 Cal.Rptr. 303, 801 P.2d 1054, 20 A.L.R.5th 1016].) The history of the enactment of this section, coupled with the enactment and amendments to the other statutes in articles 4 and 4.2, supports the conclusion the Legislature did intend to fix financial responsibility for plugging and abandoning idle wells on parties other than just the parties who physically owned or operated the wells themselves. The Legislature intended to fix responsibility with the parties who benefited from their operation. Plaintiff, as successor in interest to Crocker Bank, fits that description. If the facts of this case had been different and the wells on the leasehold had been producing oil and generating royalties when plaintiff acquired its interest in them, we doubt plaintiff would be denying any interest in them. The fact these nine “foundlings” turned out to be a liability has prompted plaintiff’s denial of responsibility for them. But, the responsibility for wells cannot be based on whether they happen to be profitable at the time the duty to abandon them arises. The duty arises because a party obtains a substantial financial benefit as the result of the operation of a well and continues until the well has been properly abandoned and plugged so that it poses no danger to life, health, or natural resources.

We emphasize that plaintiff could be held responsible for the plugging and abandoning of the nine wells even during the period of time before the leasehold was released back to it. Although during this period plaintiff could not be ordered to enter the leasehold to plug and abandon the wells, it could ultimately be held financially liable for any costs incurred by the state in doing so by placing a lien on its mineral interest in the land. Once the leasehold was released back to plaintiff, however, as exclusive owner of the mineral interest, it could be ordered to enter the property to plug and abandon the wells. In other words, we find plaintiff’s responsibility for the plugging and abandoning of the wells arose when it (or, more specifically, its predecessor in interest) first granted the lease in 1946; it was a continuing duty until the date the order to do so was issued. The timing of the order only affected whether plaintiff was personally responsible to perform the task itself or subject to financial liability if the state was required to do so.

Requiring plaintiff to accept responsibility for the abandonment and plugging of the nine wells is also consistent with public policy. It is estimated there are approximately 1,200 “orphaned” wells in California at this time. The average cost of plugging and abandoning these wells is $20,000. However, the Division is limited to expenditures of up to $500,000 per year for this purpose. (§ 3258.) Therefore, if the state were to undertake to plug and abandon all of the orphaned wells in the state, it would take almost 50 years at a cost of about $24 million. (See Assem. Com. on Natural Resources, Rep. on Sen. Bill No. 2007 (1995-1996 Reg. Sess.).) It is undoubtedly in the best interests of the citizens of this state to have these wells properly plugged and abandoned as soon as possible in order to prevent any further harm to the environment. Consequently, to the extent a responsible party for an “orphaned” well can be found, that party should be required to perform the required tasks. This policy ensures the limited resources available will be applied as soon as possible to truly “orphaned” wells—those for which no responsible party can be found. In this context, it is neither unjust nor inequitable to hold a party responsible for an “orphan” well from which it has derived substantial financial benefit.

Therefore, the enactment of section 3251 modified the definition of “owner” in section 3226 to include a mineral rights owner who derived a substantial financial benefit from the operation of a well which has been ordered abandoned under section 3237. This is the only interpretation that gives effect to the express intent of the Legislature in enacting the statute and is consistent with the entire statutory scheme of articles 4 and 4.2 of division 3 of the Public Resources Code.

Plaintiff claims it was prejudiced when the Director failed to accept the stipulation of both parties at the hearing that plaintiff was not an “operator” of the nine wells on the leasehold. Plaintiff claims it discontinued further cross-examination of the Division’s witness in reliance on this stipulation. Plaintiff contends the Director exceeded his jurisdiction and abused his authority when he refused to accept the stipulation and held plaintiff was an “operator” as defined by the statute.

During the hearing on April 3, 1995, plaintiff’s counsel was cross-examining Roy Haude, a field engineer for the Division. During the cross-examination, Haude was asked if he considered plaintiff an “operator” of the wells. The following colloquy ensued:

“Q [Counsel for Plaintiff] Okay. I am trying to find out whether you consider Wells Fargo Bank to be the operator of the OPMI lease; did Mr. Heck ever inform you of that?

“Mr. Hager [Counsel for the Division]: I will object on that, is [sz'c] calls for a legal conclusion.

“The Witness: I believe the question before me is, is Wells Fargo Bank the operator? In this case, I would consider them being the operator because that is who I write to.

“Mr. Burger: Q You write to them, do you not, on the basis of their being the mineral owner?

“A Correct. They are the mineral rights holder.

“Q Do they ever file papers with the Division, to your knowledge, indicating they’re the operators of the OPMI lease?

“Mr. Hager: In an attempt to shortcut this, we’ll stipulate that Wells Fargo Bank is not the operator.

“Mr. Burger: Thank you. I would move the three documents into evidence as Appellant’s next in order.”

Notwithstanding this stipulation, the Director found plaintiff was an “operator” of the wells. “An additional, independent basis for Appellant’s responsibility for these wells is derived from its legal status as an ‘operator.’ While the Supervisor’s Counsel stipulated at the hearing that Appellant was not an operator, this is a conclusion of law that is reserved to the Hearing Officer. As set out previously, ‘Operator’ is defined to include ‘any person in control of any well.’ Pub. Res. Code § 3009. By the Appellant’s own admission, it is presently the holder of the exclusive right to take or capture oil and gas from the property in question. We conclude that Appellant is thus in control of the wells in question, and in addition to its liability as an owner, Appellant has an independent liability for abandonment of the wells as an operator, by definition of law.” The Director made this finding in addition to finding plaintiff was an owner of the wells and, therefore, independently liable for their abandonment.

We need not reach the issue of whether plaintiff is as an “operator.” In passing, we do note that section 3009 defines an “operator” as a party “drilling, maintaining, operating, pumping, or in control of any well.” The language used in the statute contemplates a party taking an active role in the operation of a well, not merely the passive role of possessing the legal right to do so. When OPMI released the leasehold back to plaintiff, the wells on it had not been operating for years. There is no evidence plaintiff ever directed operation of the wells or even knew they existed. As the court in Railroad Commission of Texas v. American Petrofina Co. of Texas, supra, 576 S.W.2d 658 said, to describe plaintiff as an “operator” of the wells “would strain the English language . . . .” (Id. at p. 659.) Here, plaintiff’s responsibility for plugging and abandoning the wells is based on its independent status as their “owner.” Therefore, even if the Director erred by failing to accept the stipulation that plaintiff was not an “operator” of the wells, the result would be the same.

Plaintiff claims it could not be directed to plug and abandon the nine wells on the leasehold because the last operator of the wells was not “deceased, defunct, or no longer in business in the state,” as required by section 3251, subdivision (a). In essence, plaintiff alleges satisfaction of subdivision (a) of section 3251 is a condition precedent to holding a mineral rights owner responsible for plugging the wells. Since OPMI was the last operator of the wells and it is not defunct, having emerged from bankruptcy in February 1995, “the requirements of PRC section 3251(a) were not satisfied and therefore an action against appellant for regulatory abatement was not authorized.” Plaintiff’s argument fails because it is based on a misinterpretation of the import of section 3251.

Section 3251 establishes the conditions under which the state may abate the nuisance created by a hazardous or idle-deserted well. It does not establish a hierarchy of parties who will be responsible for properly plugging and abandoning these wells. If one of the conditions of section 3251 is not met, the state cannot utilize its own funds to plug and abandon a well. The statute has no impact on the order in which the owners and operators will be required to perform that task. Further, there is nothing in section 3251 or any of the provisions of article 4 or 4.2 that require an operator be defunct or nonexistent before requiring an owner to plug and abandon a well. To the contrary, section 3226 is expressly worded in the disjunctive: “owner or operator.” (Cf. Tex. Nat. Res. Code Ann., § 89.042, subds. (a) & (b) [nonoperators responsible for plugging wells only if operator cannot be found or is insolvent].)

Plaintiff’s argument suggests that the Director should have pursued OPMI, the last operator of the wells, more diligently before seeking to hold plaintiff responsible. This equitable argument is addressed in part III, post.

II. Public Policy and Mineral Interests Owner.

Plaintiff contends it is against public policy to hold a mere mineral rights owner responsible for plugging and abandoning wells. Three separate bases are forwarded for this argument, none of which are persuasive.

Plaintiff first contends it is unfair to hold it responsible because its mineral estate had been severed from the surface estate. Plaintiff contends, therefore, its interest was tantamount to an easement on the property. Analogizing to federal cases involving liability of easement owners under The Comprehensive Environmental Response, Compensation, and Liability Act. (42 U.S.C. § 9601 et seq.) (CERCLA), plaintiff argues it should not be held liable for the conditions on the property over which it holds only an easement. This argument is fallacious.

Plaintiff is correct that its mineral estate, as a profit á prendre, is indistinguishable from an easement. (Gerhard v. Stephens (1968) 68 Cal.2d 864, 880 [69 Cal.Rptr. 612, 442 P.2d 692].) However, this fact does not absolve it of liability for the wells on the leasehold. The interest plaintiff holds is an interest in real property and, in fact, the interest which caused the problem the Director is attempting to correct with the order. Consequently, plaintiff’s reliance on Long Beach Unified Sch. Dist. v. Godwin Liv. Trust (9th Cir. 1994) 32 F.3d 1364, is misplaced. In Long Beach Unified Sch. Dist., the owner of property which contained a hazardous waste facility asserted the holder of an easement across the property was liable for the cleanup required under CERCLA. (32 F.3d at pp. 1365-1366.) The easement was only to run a pipeline across the property and was not connected to the operation of the hazardous waste facility and did not cause any pollution to the property. (Id. at p. 1366.) It was in this context that the Ninth Circuit Court of Appeals ruled the owner of the easement was not responsible for any costs of cleanup. (Id. at pp. 1369-1370.) The court noted, however, the result would be different if the pipeline was responsible for the release of hazardous materials. (Id. at p. 1367.)

Unlike the owner of the easement in Long Beach Unified Sch. Dist. v. Godwin Liv. Trust, supra, 32 F.3d 1364, the exercise of plaintiff’s mineral rights interest on the property was the direct and proximate cause of the problems which the Director’s order was intended to cure. It was the use of plaintiff’s “easement” to produce oil on the property that resulted in the wells being dug and operated. Therefore, plaintiff cannot avoid responsibility for them by simply claiming its interest is merely an easement unrelated to the condition of the property.

The second prong of plaintiff’s argument is that public policy is hindered, not furthered, by holding a mineral estate owner liable for the costs of plugging and abandoning a well. Plaintiff claims this theory of liability would only encourage the operators of idle wells to not properly plug and abandon them because of the insouciance of the Director in this case to pursue the last operator of the wells. At the same time, plaintiff argues a decision to hold a mineral estate owner liable will have a chilling effect on the willingness of other such owners in the state to grant oil and gas leases to third parties, for fear they may ultimately be held liable for plugging and abandoning the wells over which they exercise no control. This argument is unpersuasive.

We repeat that the enactment of section 3251 in 1976, coupled with the amendment of section 3226 in 1979, actually narrowed the class of parties who could be held financially liable for the costs of plugging and abandoning idle-deserted wells. Prior to enactment of those statutes, a lien could have been placed against the property on which a well was located to cover the costs of plugging and abandoning it, regardless of whether the owner derived any financial benefit as a result of its operation.

Additionally, as discussed ante, the entire statutory scheme of articles 4 and 4.2 indicates an intent on the part of the Legislature to hold those who benefit from the operation of a well responsible for abating any nuisance it creates. Holding plaintiff responsible for plugging and abandoning the nine wells on the leasehold would further that policy. We reject the not