LOS ANGELES, May 20, 2020 /PRNewswire/ -- Consumer Watchdog called upon Governor Gavin Newsom to prevent oil companies from receiving approvals for new oil wells without first requiring full bonding for their clean-up.
In a letter to the governor, the consumer group pointed to the impending bankruptcy of oil drillers as oil prices bottom out as the reason for the Governor to demand that the companies put up before they drill down. It also cited the billions that the state needed to close and clean up wells that oil companies have yet to pay for.
"Given the state's grave deficit, it's imperative that no new wells be approved without full bonding for their clean-up and a requirement to plug a certain number of idle wells in exchange for a new permit," the letter said.
The letter took issue with state oil regulators who just gave oil companies a reprieve on paying fees and submitting plans to manage environmentally-damaging idle wells.
"This reprieve is exactly the wrong policy decision in light of a whopping $9.2 billion that the oil industry owes to California to plug and close wells at the end of their useful lives," Consumer Watchdog wrote in a letter to Newsom. "Companies have put up only a total $110 million in bonding for those wells, according to a recent report by the California Council on Science & Technology."
"Oil producers keep wells idle in California more often than not in order to avoid the cost of permanently plugging and closing them," the letter stated.
"In California, out of a total of 107,000 active wells, roughly 35,000 wells are idle and another 35,000 are barely producing. Many companies don't want to spend the money to plug either idle or marginally productive wells. The state abets them by allowing idle wells to stay that way for decades."
According to state law, oil companies must put up bonds in exchange for permits to drill or rework wells as financial assurance that the wells will be plugged and cleaned up at the end of their productive lives. But state regulators never made companies put up realistic amounts when the average cost of decommissioning a well in California is $86,000, Consumer Watchdog said.
The state's seven largest drillers, controlling 75% of all wells, have posted bonds amounting to only an average of $230 per well.
"This is scandalous," the letter said. "Since you took office in January 2019, CalGEM has issued a total of 6,168 new permits, excluding for well plugging and closure. Based on average decommissioning costs of $86,000 per well, these companies should have put up $530 million."
Oil industry analysts 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.
That includes companies such as California Resources Corp. (CRC), an Occidental Petroleum spinoff. CRC is teetering on the edge of bankruptcy with $5 billion in debt coming due, but controls 20% of the idle wells in the state. Its bankruptcy would leave the state with costs to plug onshore wells of $1.4 billion, according to analysis by the Carbon Tracker Initiative. Closing its offshore wells would cost another $2.3 billion.
"The only prudent move, to spare the state billions in clean-up costs, is to issue an executive order stopping any more permits for wells without oil companies putting up the requisite amounts of money first to plug each one," Consumer Watchdog's letter concluded. "Taxpayers deserve nothing less."