Cleaning Up

The State of California recently passed a new bill increasing requirements for oil and gas companies to plug and remediate idle wells in the state. Assembly Bill 1866 is the latest in a series of California legislation aimed at reducing emissions from oil and gas production in the state. However, experts are concerned that taxpayers could end up on the hook for cleanup costs due to burdens the bill would impose.

The bill, introduced by state representative Gregg Hart and sponsored by the Center for Biological Diversity, would require the largest operators in the state to plug 20% of the idle wells in their inventory each year, with small and medium-sized companies required to plug 10% and 15%, respectively. The bill also eliminates a provision under existing state law that allowed operators to pay a fee in lieu of some plugging obligations.

There are more than 40,000 idle wells in the state in California, roughly two-thirds of which are known to emit methane. The new bill would result in the five largest oil companies in the state plugging more than 4,200 wells in the first year. However, well cleanup is expensive and while the state does not have enough money to plug and remediate wells, there is concern that the oil industry doesn’t have sufficient resources either. A 2023 report calculated that plugging California’s wells would cost about $23 billion, but bonds for plugging only amount to $106 million.

Ownership & Financial Pressure

These additional costs would dramatically affect the bottom line of California oil companies. The majority of active wells in California are end of life, meaning they need to be plugged soon. However, these wells are low producing and thus are not generating much revenue to fund costly remediation. Further complicating the issue is the history of these wells, with most of these low-producing and idle wells not having been drilled by their current owner and thus the majority of the profits from the wells early life (when production was high) already extracted and not in possession of the operator now burdened with cleanup. Thus a drastic increase in mandated plugging could lead to bankruptcies that would leave many idle wells without an owner, shifting the burden onto the state and thus taxpayers.

A Way Forward

BioSqueeze recently began work with operators in California to expedite plugging operations. Utilizing our proven biomineralization technology to provide an effective and economical way to permanently eliminate methane leaks that can otherwise skyrocket plugging costs. However, the regulatory environment in California, which many in the industry see as adversarial, could further motivate the few operators left in the state to leave.

In many cases oil and gas companies around the country have shown their commitment to cleaning up wells. But if excessive regulatory and financial burdens cause companies to go bankrupt or leave the state entirely, the task of plugging and remediating oil and gas wells will fall to California’s taxpayers, an outcome supporters of Assembly Bill 1866 and other regulations are looking to avoid.