Plugging Pressure

California recently passed a new law intended to solve the problem of the state’s thousands of idle oil and gas wells, many of which are emitting methane. Assembly Bill 1866, recently signed into law by Governor Gavin Newsom, dramatically increases the number of idle wells that oil and gas companies operating in California must plug each year and significantly raises fees on unplugged wells. Although intended to protect the environment and human health, there are concerns that AB 1866 could have unintended consequences.

Under previous requirements, oil and gas companies in California only needed to plug 4 to 6 percent of their oldest idle wells each year. California has seen the sealing and abandonment of more than 8,000 wells since 2019, but estimates show more than 40,000 idle wells remaining. New requirements put into place by AB 1866 require operators to plug 15 percent of their idle wells in the first year, with requirements increasing to 20 percent by 2030. Smaller operators would have lower requirements that also increase over the same span.

Companies have been able to pay fees instead of plugging wells, with some fees as low as $150 per well. But under AB 1866, operators would need to pay much more: up to $22,500 per well per year for the oldest idle wells. These fees are seen by supporters as an incentive for companies to take action; however, industry experts think that such increased regulations could accelerate the trend of oil and gas companies leaving the state and lead to taxpayers footing the bill for decommissioning.

More Regulations More Problems

California only produces a fraction of the oil and gas it needs each year, with the state depending on imports to meet 75 percent of its demands. And while roughly half of the idle wells in the state haven’t produced in years, industry experts report that some idle wells could be brought back into service. But increased fees on unsealed idle wells would make this unfeasible for many operators.

Industry advocates also note that the state’s Geologic Energy Management Division can already order the sealing of wells that pose risks to the environment and human health, and that sealing idle wells that could be returned to production would increase the state’s dependence on foreign energy.

However, supporters of AB 1866 note that other states like North Dakota and West Virginia require companies to plug idle wells after one year. Additionally, bill supporters cite studies showing that plugging idle oil wells could stimulate job creation in the state as skilled workers will be needed to seal idle wells.

Less Production = Less Money

Since 1985, oil production in California has decreased by more than 70 percent and is continuing decline. The estimated costs of tens of billions of dollars to plug wells in California make the prospect of dealing with idle wells seem daunting. Producers only have a fraction of the funds needed to plug wells set aside in bonds, and state taxpayers have already paid millions to plug orphan wells.

The continuing decrease in oil production has some experts concerned about idle wells falling onto taxpayers if companies declare bankruptcy. Industry advocates, note that increased costs and the loss of potential future revenue sources could increase the likelihood of bankruptcies.

How the implementation of AB 1866 and its effects will play out is currently unclear. However, what is clear is that plugging wells is and will likely continue to be a challenge for many budgets. Whether funding comes from company coffers, state taxpayers, federal grants, or other sources, the need for cost-effective solutions is obvious. BioSqueeze’s innovative technology provides a cost-effective solution to permanently seal wells that is 3-4 times more effective than standard procedure. Bringing per-well costs down would improve the bottom line of plugging programs regardless of their funding source allowing more wells to be decommissioned for less.