New Report Says California Resource Corporation's Failure Could Leave California Taxpayers with $900 Million Burden

By Dan Bacher | 

Sacramento, CA --The Sierra Club released a new report today (October 1) revealing that the financial failure of California Resources Corporation (CRC), a spin-off of Occidental Petroleum, “could leave California taxpayers bearing more than $900 million in costs for the remediation of thousands of CRC’s abandoned wells.”

CRC is California’s largest oil and natural gas producer with the state’s most “diverse operations,” according to the CRC website. 

CRC spends hundreds of thousands of dollars every year on lobbying the Governor’s Office, the Legislature and regulatory officials in California. For example, CRC spent $310,198.35 in the fifth quarter of the 2019-2020 Legislative Session and $344,959.57 in the sixth quarter.  

“CRC, which filed for bankruptcy in July, has an ownership interest in 17,971 wells in California, the vast majority of which produce little or no oil and gas,” the Club stated in a press release. “If left unplugged, idle wells can cause enormous environmental and economic harm, leaking greenhouse gases, contaminating soil and groundwater, and deteriorating property values.”

California law requires oil and gas companies to pay to plug their own idle wells, but the state and the taxpayers are left with the obligation to close their wells when companies go out of business.

“As the owner of those wells, CRC has a legal obligation to the State of California to ‘plug and abandon’ those wells after they cease production, a costly process estimated at around $50,000 per well, or a total of over $900 million,” the report states.

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The Club released the report, The Risk of Unplugged Wells for California’s Taxpayers; California Resources Corporation - A Case Study,” as the bankruptcy court is scheduled to consider CRC’s proposed reorganization plan on October 13. The report digs into the company’s current and projected finances to determine whether CRC will be able to cover its massive well remediation obligation or whether those costs will be left to California taxpayers. Key findings from the report include:

  • More than three quarters of CRC’s nearly 18,000 wells are past the end of their productive lives. Almost 2,200 of those wells have already sat idle for 15 or more years.
  • In total, CRC’s wells would cost in excess of $900 million to close today; a cost that will only rise going forward.
  • Based on current market conditions, CRC is unlikely to generate positive cash flow between now and 2025, and it is unlikely that CRC will have any revenues set aside for closure obligations by 2025. CRC is also unlikely to generate positive cash flows after 2025.
  • If the state fails to require CRC to set aside funds to pay for its well closure obligations as part of the bankruptcy proceeding, taxpayers could eventually be left to cover more than $900 million in costs to plug CRC’s abandoned wells.”

The Sierra Club criticizes California oil and gas regulators for failing to intervene so far in the bankruptcy proceedings to make sure that California taxpayers aren’t left high and dry with over $900 in costs to plug the companies abandoned wells.

“The California Geologic Energy Management (CalGEM) Division of the California Department of Conservation is entitled to participate in CRC’s bankruptcy as the regulator overseeing the company’s operations. But despite being responsible for ensuring that CRC satisfies its obligations, the state has yet to intervene,” the Club said.

In 2019, despite struggling to turn a profit, CRC’s CEO still took home a sizable bonus, the Club pointed out.

“Without intervention from CalGEM, CRC is on track to make sure its executives remain well-paid while workers are left behind and California taxpayers are left with the $900 million bill for cleaning up the company’s mess,” said Monica Embrey, Associate Director of the Sierra Club’s Beyond Dirty Fuels campaign. “CRC may be the first major oil company to fail in California, but it certainly won’t be the last. It’s critical that the state use its authority to protect workers, communities, and our climate by holding these companies accountable for their massive well closure obligations.”

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. 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.”

In response, oil industry analysts point out out that 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. Analysts also predict that at least 100 oil companies nationally could go bankrupt over the next year, due to an oil glut and drops in the price of oil since 2014.  

The report was issued as California oil and gas regulators continue to issue permits for new oil and gas wells during an unprecedented pandemic and record fire season.

Since Gavin 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 1,540 drilling permits for new wells, according to the FracTracker Alliance and Consumer Watchdog. 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 7,071. The permit numbers and locations are posted and updated on an interactive map at the website:    

As I receive reactions to the just-issued report, I will post them here.

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