California slows transfer of oil well cleanup liabilities with Orphan Well Prevention Act
New legislation has substantially reduced the flow of low-producing wells to lower-producing companies, reducing taxpayer risk.
Closing the Oil Well Transfer Loophole
Sign up today to download
the full report
The Impact of California's Orphan Well Prevention Act on the transfer of oil well cleanup liabilities
California’s Assembly Bill No. AB 1167 (AB 1167) required full-cost financial assurance upon the transfer of low-producing oil wells. The result has been to curtail the transfer of low-producing wells that likely posed greater risk of operator defaults to the State of California. Comparing transfers prior to the bill and after its implementation reveal a stark contrast – from over 1,300 wells in the first half of 2023, to just six wells in 2024.
The wells transferred prior to AB 1167 were low-producing and sat on a knife’s edge between being reworked or plugged. Around 60% of the wells transferred prior to AB 1167 coming into effect were either “idle” or “active” but not producing oil or gas. Additionally, the transferred wells were approximately 32% less productive than the transferor’s aggregate production.
While AB 1167 has effectively stopped transfers that imposed greater risk on the state, it has not resulted in additional financial assurance for California’s low-producing wells, because overall bonding for low-producing wells retained by current operators is low.
Having addressed the transfer problem, the State would be wise to consider measures increasing the financial assurance for low-producing wells held by current operators. This might include:
- Requiring savings through sinking fund mechanisms.
- Eliminating blanket bonding.
- Using other liability mechanisms to ensure that there are responsible actors with the financial capacity to plug the wells.
Quotes
Rob Schuwerk, report author with Redwater Insights, said: “California has taken a critical first step. It should now ensure that all operators – not just sellers – are financially prepared to fulfil their clean up responsibilities.”