As California Oil Giant Files for Bankruptcy, Environmental Justice Groups Urge Governor to Plan for Just Transition

Three active oil wells (using nodding donkeys) in Elk Hills Oil Field, located south of Buttonwillow, California. Photo courtesy of Wikipedia. | 

By Dan Bacher | 

The California Resources Corporation (CRC), the largest oil and natural gas exploration and production company in the state, has filed for Chapter 11 bankruptcy, potentially leaving California taxpayers on the hook for a massive cleanup. 

CRC and its affiliates operate approximately 18,700 wells in California, including 7,826 that are already “idle,” meaning they’ve produced little to no oil in the past two years. It could cost more than $1 billion to properly plug the company’s abandoned oil wells, according to the Institute for Energy Economics and Financial Analysis. 

Specifically, the company announced it has entered into a Restructuring Support Agreement (“RSA”) with holders of approximately 84% of the Company’s 2017 term loans, 51% of the Company’s 2016 term loans and its Elk Hills midstream joint venture partner, Ares Management L.P. 

“To implement the terms of the RSA, the Company and certain of its subsidiaries have filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas,” according to the announcement from CRC on Wednesday, July 15. “Upon plan confirmation, the implementation of the RSA would reduce CRC’s debt substantially, enabling the Company to operate safely through the current downturn in commodity prices and establishing a solid financial foundation to enhance future value creation.”

Todd A. Stevens, President and Chief Executive Officer of CRC, said the bankruptcy was spurred by “today’s unprecedented market conditions.”

“We have consistently operated within cash flow, significantly reducing the outsized debt burden we inherited from Occidental Petroleum at our December 2014 spin-off,” said Stevens. “However, today’s unprecedented market conditions, including oversupply and reduced demand due to COVID-19, require that we further reduce our debt through a Chapter 11 process.”

“CRC will emerge from Chapter 11 as a strong, healthy company committed to providing Californians with safe, affordable, reliable and locally produced energy, good-paying jobs and millions of dollars in annual government revenues for vital public services for many years to come,” Stevens claimed.

However, environmental justice advocates weren't convinced by Stevens’ claim that “CRC will emerge from Chapter 11 as a strong, healthy company,” but viewed the bankruptcy as yet another example that the oil industry is nearing its end in California. They urged the Governor and other government to plan for the transition from a fossil fuel economy to healthier, more sustainable one.

"Joining dozens of other oil companies who have filed bankruptcy this year, CRC's failure is another clear death knell for polluting fossil fuels,” said Martha Argüello, Executive Director of Physicians for Social Responsibility—Los Angeles and Co-Chair of Stand Together Against Neighborhood Drilling - Los Angeles (STAND-LA), an environmental justice coalition based in South Los Angeles and Wilmington, CA fighting to protect frontline communities from urban oil drilling. “As the oil industry meets its end, we urge our elected leaders—at the local and state level, from Mayor Eric Garcetti to Governor Gavin Newsom—to plan for this inevitability.”

“Without a plan, workers will be left unemployed, frontline communities will be left with the toxic and unsafe infrastructure, and our local governments left to foot the bill for cleanup. We have a critical window of opportunity right now to put a plan in place for smooth and just transition away from fossil fuels and toward a healthier and more sustainable economy for all communities. It's up to our local governments to seize that opportunity and hold these companies accountable so no worker or community is left behind," said Arguello.

Ingrid Brostrom, Assistant Director at the Center on Race Poverty & the Environment, said CRC’s bankruptcy is the latest example of why Kern County, currently the center of the oil industry in California, must diversify its economy to protect its workers and communities. 

“As wealthy oil executives walk away from their financial obligations, workers and communities pay the ultimate price,” said Brostrom. “Until Kern County and the State of California truly invest in identifying and promoting new economic drivers in the region, workers will continue to lose jobs, residents will lose vital public services, and communities will be left with a legacy of dangerous abandoned wells and infrastructure.”

“Kern County has been hit hard by dual economic and public health crises of COVID and the collapse of the oil industry. CRC’s filing of Chapter 11 may allow it to avoid paying its $25 million debt to Kern County to fund vital public services it needs more than ever and may leave taxpayers on the hook to cover its massive cleanup costs. This is simply unacceptable,” she stated. 

“Workers and residents of Kern County, and people across the state, deserve better. It is time for Kern County to stop relying on an industry that will undoubtedly and increasingly seek bankruptcy protection and walk away from its financial obligations. And it is time for Governor Newsom to lead California into a future powered by healthy, good-paying jobs that don’t keep our state entrenched in a dying industry,” said Bostrom, whose group is a member of the community coalition VISION working in support of a 2,500-foot buffer between oil development and sensitive receptors.

In a letter today, Sierra Club California and the Center for Biological Diversity called on Governor Newsom to intervene in CRC’s bankruptcy proceedings to ensure the company sets aside enough money for well cleanup.

"CRC's bankruptcy is likely just the first of many as the oil industry inevitably declines in California. Governor Newsom has the tools to protect the public from Big Oil, but so far he hasn't used them, " said Kathryn Phillips, Director of the Sierra Club California. "It's critical that Governor Newsom ensure that failing oil companies are held accountable for cleaning up their own mess, rather than leaving taxpayers and workers to pay the price." 

The letter also urges Gov. Newsom to take proactive steps to protect the public and the environment in anticipation of a likely wave of future oil and gas bankruptcies. These steps include:

• “Increasing and accelerating well plugging and abandonment requirements to reduce air and water pollution and create jobs.
• Increasing bond requirements to ensure that oil and gas companies set aside enough financial resources to cover the full costs of remediation even if they become insolvent.
• Ensuring that the oil and gas industry as a whole – not taxpayers –funds the remediation of truly “orphaned” wells, by increasing the administrative fee on well owners as needed.
• Avoiding the accrual of additional well cleanup costs by halting approvals and permits for new oil and gas activity, including new wells and fracking permits.
• Taking steps to ensure that oil and gas companies satisfy their obligations to workers by honoring their pension and healthcare commitments.”

State oil regulators have issued CRC and its affiliates permits to drill nearly 300 new wells so far this year, including 27 new permits in just the first week of July, all without conducting environmental review required by law, according to the groups. Newsom has approved this expansion of drilling operations despite CRC’s long record of violating safety and environmental regulations. 

“As other companies flirt with insolvency, the governor should accelerate well remediation by solvent operators, increase bonding levels on existing wells, and stop digging the hole deeper by handing out new drilling permits,” said Kassie Siegel, an attorney at the Center for Biological Diversity.  “Forcing companies to clean up their own messes would create jobs, keep the public safe from unattended wells and make sure polluters are the ones paying for cleanup.”

Uduak-Joe Ntuk, state oil and gas supervisor for the California Department of Conservation’s Geologic Energy Management Division, told the Associated Press that the “company’s bankruptcy filing does not reduce its obligation to comply with stringent oil and gas regulations and to pay annual assessments.”

“CalGEM has taken steps to prepare for developments like this and will continue its oversight of CRC’s facilities and operations to ensure ongoing protection of public health, safety and the environment,” Ntuk said. 

Since Newson became Governor in January 2019, his oil and gas regulators have continued Governor Jerry Brown’s expansion of oil and gas drilling in California. So far this year, Newson  has issued 1,500 drilling permits for new wells, noted Siegel. He also lifted a moratorium on fracking by authorizing 360 new fracking events over the past several months.

The number of oil permits issued under Newsom since he took office in January 2019 now totals 7,474, according to the FracTracker Alliance and Consumer Watchdog. The permit numbers and locations are posted and updated on an interactive map at the website: NewsomWellWatch.com   

In 2014, CRC was created as a spin-off by Occidental Petroleum and took over Occidental’s California oil and gas wells. Since then, CRC has performed poorly, earning “junk bond” status from ratings agencies. CRC blamed the coronavirus pandemic and economic downturn for the bankruptcy, but CRC was at high risk of bankruptcy even before these events, as detailed in a report from the Institute for Energy Economics and Financial Analysis.

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