Gov. Newsom's May budget revision allocates $200 million to plug abandoned and orphaned oil wells

By Dan Bacher | 

California Governor Gavin Newsom on May 14 unveiled his May budget revision that allocates $200 million to plug abandoned and orphaned oil and gas wells, many located near low-income residential areas where the majority of residents are Latino and Black.

In January 2020, a report by the California Council on Science & Technology revealed that California taxpayers could be on the hook for more than $500 million to plug thousands of “orphan” wells drilled and abandoned by oil and gas companies.

“An initial analysis of readily available information suggests that 5,540 wells in California are, as defined, likely orphan wells or are at high risk of becoming orphan wells in the near future,” the report stated. “The State’s potential net liability (subtracting available bonds held by CalGEM) for these wells is estimated to be about $500 million.”  

Plugging all 107,000 oil and wells in California when they become idle would cost more than $9 billion, the report also found.

The budget allocation of $200 million to plug abandoned and orphaned gas wells prompted responses of cautious praise by environmental justice and environmental groups.

“This investment will help create good-paying jobs and will help the state tackle its multibillion dollar idle well liability,” according to a statement by the Last Chance Alliance. “California’s largest oil producers have set aside only a small fraction of the money required to properly clean up the oil and gas wells that pose grave threats to our water supplies, environment, and public safety if not properly remediated.”

“While this is a promising start, oil companies—not every day Californians—must be held financially accountable for the costs of remediation,” the group said.

They also noted that Newsom’s action on oil well cleanup and capping should “be just the beginning.” 

Members of Last Chance Alliance believe Newsom must follow these “promising first steps” with a comprehensive plan for transitioning CA off fossil fuels and make workers and communities whole, as well as address the ongoing public health crisis facing communities living near drilling. 

Climate justice advocates issued the following statements in response to Newsom’s budget allocation.

"Fossil fuel workers in Kern County are losing their jobs in real time,” said Ingrid Brostrom, Assistant Director with the Center on Race, Poverty & the Environment. “Meanwhile, 300,000 oil wells and contaminated sites await clean-up and pose a current risk to communities. The Governor has a tremendous opportunity to clean our state, protect our communities, and offer High Road employment opportunities for union workers. Bold ideas, like a California Remediation Workforce, with strong labor protections, livable wages, and union jobs can usher in the kind of labor-environmental justice partnerships that California needs.”

“Plugging and remediating oil wells is a critical next step to meet California’s climate goals,” said  Veronica Wilson, California Organizer, Labor Network for Sustainability. “As essential as the work itself is making sure that these are high-road, union jobs with strong safety training to protect both workers and nearby residents. All displaced fossil fuel workers and communities disproportionately impacted by pollution must be the first people who get access to these good jobs. That’s a foundational part of what a just transition looks like.”

“At this crucial moment in our state’s history, Governor Newsom is increasingly using the tools at his disposal to kick-start economic opportunity and protect Californians from future catastrophes,” said Benjamin Smith, Senior Campaigner, Strategic Partnerships at Greenpeace USA. “Newsom’s commitment today to ramp up oil well cleanup and remediation opens the door towards creating tens of thousands of shovel-ready, good-paying union jobs while also protecting communities from toxic pollution. Newsom must include safeguards that require the fossil fuel industry to fulfill its legal obligation to clean up its mess, rather than burdening taxpayers. We urge Governor Newsom to follow these actions with a bold and broad investment agenda that creates long-term career pathways, replaces critical tax base shortages, and other crucial elements of a fair and managed transition off fossil fuels.”

“We must continue to push for an economy that prioritizes our frontline communities, climate, and workers, not fossil fuel executives who have exploited our communities, our health, and our clean air and water to benefit their own bottom lines,” said Lauren Cullum, Policy Advocate at Sierra Club California. “We must also continue to invest in communities and workers that have relied on fossil fuels, making sure that no one is left behind in a just transition to a clean energy future. On all of these fronts, Governor Newsom’s budget demonstrates a meaningful commitment to plugging oil and gas wells and creating good-paying jobs by tapping fossil fuel workers to clean up existing toxic sites. As the Newsom Administration puts these plans into motion, they must keep both frontline communities disproportionately impacted by oil and gas infrastructure and pollution and union workers at the center of their process -- in order to solidify California’s spot as a leader in the global, critical race against climate change.”

“Water, housing, clean air and energy are human rights,” said Tiffany Eng with the California Environmental Justice Alliance. “The Governor’s historic funding for the Transformative Climate Communities Program and proposed $2 billion to address the utility debt crisis are powerful starting numbers. We commend the Governor’s leadership and proposed investments in communities of color and low-income communities struggling to recover from the COVID-19 pandemic, California can and must go further and faster to meet our climate and equity goals. With an unprecedented surplus, now is the time for Assembly and Senate leadership to fully fund environmental and climate justice priorities for California communities. We urge the Governor and Legislature to consider new ideas - like a California Remediation Workforce program - to create good, High Road jobs while capping dangerous wells and addressing toxic sites.”

On April 23, Governor Gavin Newsom took the first steps to ban new fracking permits by January 2024 and to phase out oil extraction in California by 2045, under intense pressure from hundreds of environmental justice, public health, public interest, climate and community groups.

The Governor directed the Department of Conservation’s Geologic Energy Management (CalGEM) Division to “initiate regulatory action to end the issuance of new permits for hydraulic fracturing (“fracking”) by January 2024.”

In addition, Governor Newsom requested that the California Air Resources Board (CARB) “analyze pathways to phase out oil extraction across the state by no later than 2045,” according to a press release from the Governor’s Office.

Many environmental justice and climate groups say these steps by the governor, who is now fighting a recall campaign, are postponed until too far in the future for a state that is now being devastated by the impacts of climate change, including catastrophic fires every year, unprecedented drought and massive juvenile fish kills on the Klamath and Sacramento rivers, along with decades of environmental destruction and severe public health impacts caused by oil and gas drilling.

His latest directive also contradicts the Governor’s previous claim that he didn’t have the executive authority to ban fracking — and that it was the Legislature’s role to do it.

California Council on Science & Technology Report: More than 9 billion needed to plug all 107,000 wells

The California Council on Science & Technology study released last January,  “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 the Division of Oil, Gas, and Geothermal Resources (DOGGR), now called the California Geologic Energy Management Division (CalGEM), under the California Department of Conservation.

The report reveals that:

  • “Recent cases in California highlight the potentially expensive and complicated nature of plugging and decommissioning wells and the difficulty of determining liabilities following bankruptcy.

  • As most of California’ swells (98%) are located onshore, it will be important to assess the potential liabilities for onshore wells.

  • The bond amounts available to pay for plugging and decommissioning vary according to operator, but in almost all cases these amounts are substantially lower than the predicted costs.”

The study also provides recommendations for a more detailed analysis of orphan well liabilities using the findings from the initial report.  

The report documents about 107,000 active and idle oil and gas wells in California, a state that is constantly touted by state officials and media outlets as the nation’s “green leader.”

“At some point, each well will end its productive life and the operator of the well will be required to carefully plug the well with cement (‘plug and abandon’) and decommission the production facilities,” the report states.

“There is a large population of nonproductive wells in the state, known as idle wells, which have not produced oil and gas for at least two years and have not been plugged and decommissioned. Idle wells can become orphan wells if they are deserted by insolvent operators. When this happens, there is the risk of shifting responsibility for decommissioning the wells to the State,” the authors note.

The report said there are current policies in place to protect the State from the potential liabilities of orphan and idle wells. For example, operators are required to file indemnity bonds—a form of financial assurance—when drilling, reworking, or acquiring a well, to support the cost of plugging a well should it be deserted.

“In an effort to prevent the orphaning of wells, the operators of idle wells are required to pay fees or develop management plans to eliminate long-term idle wells—wells that have been idle wells for 8 years or more. However, the available funds from these bonds and fees are often not enough to fully cover the costs of plugging and abandoning the well and decommissioning its facilities. In some cases, especially for older orphan wells, there may be no bond at all,” the report stated.

The analysis also reveals that 5,540 wells in California “may already have no viable operator or be at high risk of becoming orphaned in the near future,” a fact that strongly conflicts with the oil industry’s constant contention that California oil drilling operations are the most heavily regulated in the entire country.

“The State’s potential net liability (subtracting available bonds held by CalGEM) for these wells is estimated to be about $500 million. The share of this long-run cost that will be borne by the State (as opposed to operators) will depend on policy, market outcomes, and other factors,” the report states.

The study identifies additional 69,425 economically marginal and idle wells that could become orphan wells in the future as their production declines and/or as they are acquired by financially weaker operators. “Increasing the financial security for these wells while they are still profitable may avoid plugging and decommissioning challenges in the future,” according to the report.

These wells will eventually need to be plugged, bringing the possible cost to $5 billion. Plugging all 107,000 wells in California would cost more than $9 billion, the report finds.

The lead author of the report is Judson Boomhower, Assistant Professor of Economics at UC San Diego and an expert on energy, environmental economics, and applied microeconomics.

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