Aera Energy and Chevron set aside least amount of money per oil well for plugging and cleanup in CA

By Dan Bacher

SACRAMENTO — California’s biggest oil producers have set aside only a tiny fraction of the money that would be required to properly plug their thousands of oil and gas wells after they are no longer producing fossil fuel, a recent report published by the Center for Biological Diversity reveals.  

The results show that the largest companies reserve as little as $80 per well in state bonds for cleanup, leaving the taxpayers on the hook to pay for the majority of costs for well plugging in a state that California officials constantly tout as “green” and “progressive.”

The report also shows that Chevron has filed two blanket bonds totaling $3 million. That’s only about half of the amount, $5.9 million, that Chevron spent on lobbying in California in just one year, 2019, according to California Secretary of State data.

Aera Energy, a corporation jointly owned by Shell Oil and ExxonMobil that has 24,911 new active and idle wells in California, has set aside the least amount of any California oil company for clean up per well. The company has a single $2 million bond filed with the state, amounting to only $80.29 per well for clean up.

“According to state records, Aera’s current blanket bond amount of $2 million does not meet the state’s current legal minimum. In 2018, the state’s blanket bond requirement increased to $3 million for operators with over 10,000 wells,” the group stated.

On October 16, the Newsom Administration issued six more fracking permits to Aera Energy at a time of great risk to the environment and to the public health of affected communities also exposed to Covid 19, reported Consumer Watchdog. The number of fracking permits issued this year—despite a nine-month moratorium imposed by Newsom that ended last April—now comes to 54 issued to Aera and Chevron.

Chevron, with 27,452 new, active and idle wells, has set aside the second lowest amount per well of any California producer. The San Ramon-based oil giant has filed two blanket bonds totaling $3 million, amounting to just $109.28 per well. 

The report, “Undercover Risks: How Big Oil’s ‘Blanket Bonds’ Jeopardize the Environment and State Budgets,” uses public records on bonding from the state’s oil and gas regulator, the California Geologic Energy Management Division (CalGEM).

The California Council on Science and Technology estimates that the average cost of plugging an onshore well is $68,000 and may be much higher, according to the Center. An offshore well would cost many times more, about $1.5 million, to plug. The Council estimates the cost to plug all of California’s 107,000 oil and gas wells could exceed $9.2 billion. 

The study, “Orphan Wells in California: An Initial Assessment of the State’s Potential Liabilities to Plug and Decommission Orphan Oil and Gas Wells,” was conducted at the request of CalGEM, under the California Department of Conservation. 

Hollin Kretzmann, an attorney at the Center’s Climate Law Institute, described the state regulators’ practice of allowing Big Oil to set aside so little in cleanup costs as “reckless.” 

“Allowing oil companies to all but ignore their cleanup costs is a reckless stance that could leave state taxpayers on the hook for billions of dollars,” said Kretzmann. “Not only is Gov. Newsom turning a blind eye to potential fiscal catastrophe, he’s still issuing permits left and right to drill dangerous and costly new wells.”

Kretzmann said the low cleanup reserves are made possible by state laws permitting so-called “blanket bonds” that allow an operator to submit a single bond to cover all its wells. 

California Resources Corporation and its affiliates, which filed for bankruptcy this year, collectively operate 18,661 wells and filed bonds totaling $17 million to the state, or $924 per well, according to Kretzmann.

Kretzmann said CalGEM can require up to $30 million for bonding to reflect the actual costs of well remediation, but “the records do not show any active bonds more than $2 million.”

“Although operators are legally required to plug their oil and gas wells, most wells producing little or no oil are left unplugged and idle. Operators can pay a nominal fee to avoid plugging these wells. But by leaving idle wells unplugged, operators create dangers to public health and safety. Idle wells corrode over time and can act as pathways for gas and contaminants to migrate to the surface, causing leaks, spills and even explosions,” explained Kretzmann.

“The oil industry is facing a wave of bankruptcies, raising the question of whether operators will have enough money to meet their legal obligation to plug and clean up oil and gas wells. Venoco, for example, filed for bankruptcy and walked away from its obligation to clean up wells in Southern California. A municipality and school district were left to pay tens of millions in cleanup costs,” he added.

While some oil companies have filed for bankruptcy, others have reported big losses in the third quarter of 2020. On October 30, Chevron Corporation reported a loss of $207 million ($(0.12) per share - diluted) for third quarter 2020, compared with earnings of $2.6 billion ($1.36 per share - diluted) in third quarter 2019.

“Included in the current quarter was a charge of $130 million attributable to a tax item related to an international upstream end-of-contract settlement and a non-cash provision of $90 million for remediation of a former mining asset. Foreign currency effects decreased earnings by $188 million,” according to press release from Chevron:…

In the light of the dire environmental and health impacts of oil and gas drilling on vulnerable communities as oil companies report huge income losses and some file for bankruptcy, Kretzmann concluded, “Gov. Newsom has to stop issuing drilling and fracking permits immediately and force companies to start plugging these dangerous wells. He has an opportunity to create thousands of jobs plugging California wells as part of our just transition away from dirty fossil fuel production.”

Since Newsom become Governor in January 2019, his regulators have approved a total of 7071 oil and gas drilling permits in California, according to Department of Conservation data analyzed by Consumer Watchdog and the FracTracker Alliance.

CalGEM, the agency in charge of regulating oil and gas drilling, has approved over 1540 new oil and gas drilling permits in 2020 to date. 185% more oil and gas drilling permits were issued in the first six months of this year than in the same six months last year under Governor Newsom, the groups reported.

The permit numbers and locations are posted and updated on an interactive map at the website:  

While oil companies somehow can’t find enough money to set aside for plugging their wells, the Western States Petroleum Association, the trade association for the oil industry in the Western States and the most powerful lobbying organization in California, pumped more money into lobbying state officials than any other group in 2019, spending a total of $8.8 million. WSPA lobbies for Aera Energy, Chevron, the California Resources Corporation and other oil companies in the states of California, Nevada, Oregon, Washington and Arizona.

The oil companies also spend many millions lobbying themselves each year, in addition to the money spent on their behalf by WSPA. Chevron pumped the third most money of any organization in California into lobbying in 2019, a total of $5.9 million. The lobbying expenses of Chevron and WSPA came to a total of $14.7 million.

During the first quarter of 2020, at the same time that the Newsom Administration approved 1,623 total oil drilling permits, the Western States Petroleum Association (WSPA) spent $1,089,702 lobbying state officials.

Chevron spent even more: $1,638,497 in the first quarter of 2020 to influence legislators, the Governor’s Office and other state officials. The two oil industry giants combined to spend a total of $2,728,199 lobbying from January 1-March 31.

In the second quarter of 2020, WSPA spent $1,220,986 while Chevron spent $974,322 on lobbying in California, a total of $2,195,308.  

Neither WSPA nor Chevron had posted their July 1 to September 30 lobbying expenses for 2020 by October 31, although Aera has posted its expenses up to September 30.

Aera Energy spent a total of $672,604 lobbying California officials in 2019. In 2020 to date, Aera spent $290,826 on lobbying from January 1 to March 31, $191,660 from April 1 to June 30, and $200,082 from July 1 to September 30, a total of $682,028, more than all of last year.

In addition to spending hundreds of thousand of dollars every quarter on lobbying, Aera Energy also has deep connections to Governor Newsom’s Office. “Aera has well-connected lobbyists in its corner who work for the firm Axiom Advisors,” acccording to Steve Horn in his June article in Capital and Main:

“One of them, Jason Kinney, headed up Newsom’s 2018 transition team and formerly served as a senior advisor to Newsom while he was lieutenant governor. He is also a senior advisor to California’s Senate Democrats,” wrote Horn. “The other, Kevin Schmidt, previously served as policy director for Newsom when the latter was lieutenant governor. Aera paid Axiom $110,000 for its lobbying work in 2019 and, so far in 2020, has paid $30,000, lobbying reports reveal.”

Lobbying is just one of the seven methods that Big Oil uses in California to exercise inordinate influence over California regulators. WSPA and Big Oil wield their power in 7 major ways: through (1) lobbying; (2) campaign spending; (3) serving on and putting shills on regulatory panels; (4) creating Astroturf groups; (5) working in collaboration with media; (6) creating alliances with labor unions; and (7) contributing to non profit organizations.

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