For years, California’s big drillers have been selling unprofitable wells to smaller companies trying to squeeze every last drop of oil out of them. This process essentially incurs the costs of pumping concrete down the wellbore and removing tanks and pipelines for oilfield cleanup to operators who lack the ability to pay the final cleanup costs.
Policymakers and advocates have predicted that taxpayers, not the oil companies themselves, will ultimately have to pay billions of dollars for improvements if oil and gas operations are shut down. Unplugged wells emit climate warming methane It poses a long-term risk to soil and groundwater.
But the new law may finally slow so-called well shuffling, state data shows.
Since the beginning of the year, companies have offered to sell 766 wells in the state. But before a well changes hands, buyers must now request an estimate of the bond needed to plug the well from the California Department of Geology and Energy Management (CalGEM), the agency that regulates drilling.
The requirements are new law It was passed last year to ensure that someone other than taxpayers pays to clean up wells before they are sold.
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The state proposed a total bond amount of $80.5 million for hundreds of wells. Most of that money went toward bonds to eventually connect 729 wells in Kern County that Vaquero Energy Inc. wanted to buy from Aera Energy.
The remaining 37 wells are spread across Santa Barbara, Orange, Kern, Fresno and Los Angeles counties and are owned by 24 companies. Most of these oil wells were idle and almost all were at their limits. We produce less than 15 barrels of oil per day. produce It only holds 472 gallons of gasoline.
But all 37 proposed sales fell through after the state decided how much it would cost to cement those wells. The California Department of Geology and Energy Management referred questions about the failed deal to the companies involved.
For Rob Schuwerk, managing director of Carbon Tracker’s North American office, this means the law is working as intended. Companies are no longer handing off marginal wells to operators who lack the financial means to plug them.
“The law has stopped some of the bleeding,” Schuwerk wrote in an email to Capital & Main.
Capital & Main has contacted all operators involved in the proposed well sale. Most did not respond to emails and phone calls.
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Chad Hathaway, owner of Hathaway LLC, wanted to purchase 14 wells from Kern River Holding LLC. The state required him to post $2.6 million bond to complete the deal. His company, located in the Mount Poso oil field in Kern County, specializes in retrofitting and revitalizing marginal oil wells.
In an email to Capital & Main, Hathaway wrote that California “imposes costs so high for waivers and remediation that bonding becomes unalienable, unaffordable, and economically unviable.” He noted that the state’s bond estimates are significantly higher than the company’s internal estimates.
This sentiment is shared by other operators. Signal Hill Disposal LLC, a Southern California-based wastewater treatment company, reacted with “shock and awe” after the California Department of Geology and Energy Management said it would need to secure $651,820 in bonds to purchase a single well in Los Angeles County, according to a department email. It is listed in Obtained from Capital & Main.
However, the quoted amounts for plug wells are consistent with, or even slightly lower than, the figures included for Sierra Club idle wells. report Announced in December 2023, this is frequently cited by some lawmakers in Sacramento. The total cleanup debt for all unplugged wells in California amounts to $22.9 billion, according to the report.
carbon tracker report It is estimated that the cost of shutting all wells starting in 2023 will be more than double the projected cash flow for every oil producing company in California, given the amount of oil remaining in the ground.
Going forward, California will need to “strengthen financial assurances for all businesses,” said Carbon Tracker’s Schuwerk, which could be accomplished through bonds or bonds. sinking fundsThis can be used exclusively for clean-up costs and the oil operator will pay for it over time.
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But plans to clean up oil fields through bonds alone face major obstacles. Bond sellers have been reluctant to work with California oil operators, said Mark Karr, senior account manager at SuretyBonds.com.
“Of all the bonds we sell, this is one of the riskiest industries,” Karr said. “A lot of the surety companies don’t think it’s even worth it because we’ve had to pay out so many times,” he told the state after oil operators reneged on a promise to use their own money to plug the wells.
The state’s largest operators, including Chevron, may be best positioned to secure cleanup funding given their still highly profitable global operations. But the actions of driller Aera Energy, which recently merged with California Resources Corporation to become the state’s largest oil well operator, show how difficult it is to get companies to issue enough bonds.
In one deal proposed this year, Aera asked the California Department of Geology and Energy Management for a bond quote to sell 11 wells to an unidentified company. In another case, where Aera attempted to sell 729 wells to Vaquero Energy, it is unclear which company initiated the deal.
Bonds for both deals totaled $75.3 million, but neither moved forward. Neither Aera nor Vaquero responded to requests for comment.
And that comes just months before shareholders voted in June to acquire Aera, the California Resources Corporation. told state regulators Aera’s share transfer acquisition meant that the wells would not actually change hands. California Department of Geology and Energy Management agreed The company’s interpretation of the law did not force California Resources Corporation to file a bond to acquire Aera’s wells.
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In financial statements filed with the Securities and Exchange Commission, California Resources Corporation estimated that the long-term cost of cleaning up all the wells it unplugged after the merger (about 38,000) would be as high as $1 billion. By contrast, the Sierra Club estimated the combined debt of the two companies needed to plug idle wells at $3.5 billion.
California Resources Corporation submitted a $30 million bond to the state in December 2023 for cleanup costs, the maximum under law at the time.
Meanwhile, states are taking more steps to hold companies financially responsible for their oil wells. Last September, Gov. Gavin Newsom signed the bill. law Unless plugged in, the company is billed thousands of dollars per idle well each year.
Despite President-elect Trump’s desire to boost domestic oil production, it may be difficult for the federal government to intervene in issues related to drilling on public lands.
“This bill does not immediately conflict with federal law or implicate federal interests,” said Ann Alexander, an environmental lawyer and policy consultant who advocated for the well-bonding law.
The bonding law is a step in the right direction, but California must continue to find ways to make oil operators pay for cleanup, Alexander said. Other industries, such as the nuclear sector, could also serve as models. In the nuclear sector, power plant operators must invest their money in accordance with federal regulations. sinking funds for decommissioning.
“No matter how much people want to protect [California’s oil drilling] “If the industry is alive, it is fundamentally in decline,” she said.
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