California Governor Gavin Newsom signed the Orphan Well Prevention Act, AB 1167, in autumn 2023, aiming to prevent a rise in orphan oil wells. The law requires approval from the State Oil and Gas Supervisor before selling non-producing or marginal wells.
The act creates a process for operators to file an individual indemnity bond or blanket indemnity bond with CalGEM to cover plugging and abandonment costs. However, industry estimates are higher than internal company assessments, resulting in no proposed sales of oil wells this year.
The law aims to prevent companies from obtaining non-producing wells without sufficient funds, reducing the risk of taxpayer-funded cleanup. Despite this, the regulation has stalled new oil well transactions, with none of 37 proposed sales occurring this year.
California’s problem with orphan wells is worsening, with 41% of existing oil and gas wells being idle or abandoned as of 2023. The estimated cost for plugging and cleaning up these wells is $2.8 billion. Environmental organizations warn that nearly 70,000 more wells are at risk of becoming orphaned in the near future.
The state’s onshore decommissioning costs for dried-up wells total $13.2 billion, exceeding projected oil company profits of $6.3 billion. Even redirecting future profits to decommissioning would not cover the remaining cleanup costs, which would be at least $6.9 billion.
Source: https://oilprice.com/Energy/Crude-Oil/Why-No-One-Wants-Californias-Orphaned-Oil-Wells.html