New California law makes oil companies more accountable for cleaning, plugging idle wells

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Oil companies will have a harder time passing off old California oil and gas wells to smaller firms that can’t afford to clean them up, under a measure Gov. Gavin Newsom signed into law Saturday.

Marking a win for environmentalists and communities near aging oil fields,

The Orphaned Well Prevention Act will prohibit the sale of an oil well unless the new owner can pay to plug and clean it — with the goal of preventing wells from becoming “orphaned.” The governor’s signature is a win for environmentalists and communities near the state’s aging oil fields.

Supporters say the legislation would begin to hold the waning oil industry accountable for plugging and cleaning idle wells that are at risk of leaking oil, brine and methane into vulnerable communities.

“We’re thrilled that Gov. Newsom took the next step in holding the oil industry accountable for its messes by making it put up enough funds to clean up the riskiest oil and gas wells,” said Laura Deehan, state director of Environment California. “It’s only fair for oil companies to foot the bill for the abandoned wells that endanger our neighborhoods, not the residents who unfairly have had to live with the pollution from these wells.”

After overcoming opposition by the oil industry and criticism from the Department of Finance the bill, authored by Assemblywoman Wendy Carrillo, D-Los Angeles, narrowly passed the Senate last month before clearing a final vote in the Assembly.

The Western States Petroleum Association and other industry groups long argued that AB 1167 would not meaningfully add to existing provisions intended to avoid orphaned wells and could create hurdles for large companies wanting to sell assets to smaller ones.

“What we’re saying is if we’re going to address this issue, this bill is not the way,” WSPA spokesman Kevin Slagle said. “This is another piece of legislation that ignores the facts on the ground when it comes to the financial obligations our industry provides to the state, and we believe this will do more harm than good.”

Newsom touched on this concern in his signing message, acknowledging that increasing the financial assurances required for oil and gas well transfers “also potentially creates risk of current oil and gas well operators deserting these hazardous wells.” He said he looked forward to working with lawmakers to make any necessary revisions.

California is seeing a long-term decline of its oil industry, falling from the country’s third-largest oil-producing state to seventh in five years. Some of the world’s largest oil companies including Shell and ExxonMobil have begun to sell their California assets.

Industry experts and environmentalists say those sales have often left liabilities for smaller companies — who in some cases have declared bankruptcy — to perform expensive environmental cleanups, leaving the state to sponsor cleanups or leave wells unplugged.

Orphaned wells, as they’re called, risk harmful leaks of oil, polluted water and methane often near residential areas. According to the Geologic Energy Management Division, or CalGEM, California has plugged about 1,400 wells since 1977 at a cost of $29.5 million.

The nonprofit California Council on Science and Technology estimates that of more than 100,000 active and idle oil wells in the state, some 5,540 are orphaned. Cleaning them up could cost the state an estimated $500 million.

As the onshore oil drilling industry further wanes, a recent Carbon Tracker report found that state taxpayers could be on the hook for a much higher $6.9 billion in cleanup even if all future industry profits — an estimated $6.3 billion — were redirected to decommissioning.

The state’s current system to prevent orphaned wells mandates that oil producers put up bonds, which act as a security deposit on the promise they will perform cleanups. Yet environmental groups cite a troublesome gap between bond amounts and the actual costs to plug wells.