California taxpayers could be stuck with paying $6.9 billion to close and clean up oil and gas wells
Statewide financial assurance covers less than 1% of upstream decommissioning costs
There Will Be Blood: Decommissioning California’s Oilfields
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California’s oil and gas producing resources have been in overall decline for nearly four decades, but the industry turned a corner downward with the price collapse of 2015.
The inherent cyclicality of the commodity markets overlapped with the intrinsic depletion of the aged resource base and accelerated the decline of the onshore industry. Since 2014, onshore oil production in California has decreased by 42%, and production from gas wells has dropped even further.
More importantly, for the first time in decades, new drilling slowed, and the number of actively producing wells also declined even before increasing political pressure.
Several sources of funds for decommissioning do exist, but the total falls far short of the money required. Oil and gas companies have provided $106 million in financial assurance for onshore wells, less than one percent of their overall closure and clean-up costs. An estimated $265 million in state and federal taxpayer money has been allocated to pay for costs inherited from defunct oil companies. Taxpayers are on the hook for much more than industry has set aside, and the remaining unfunded liability is dozens of times larger than these existing funds.
- California’s oil sector sits on at least $13.2 billion in onshore decommissioning costs.
- Researchers find California oil companies’ projected profits will total $6.3 billion.
- If all future profits from onshore operations were redirected to decommissioning, the remaining clean-up costs of at least $6.9 billion would fall by default to California taxpayers
Quotes
"The oil industry may have decades left to produce in parts of California, but thin margins in late life generate lower and more fragile profits,” said Dwayne Purvis, the report’ author and Founder and Principal Advisor of Purvis Energy Advisors. “Even before recent political opposition to the industry, drilling and active well counts were declining. The industry and the public it serves have a problem they cannot drill their way out of."
“We were surprised by the results,” said Rob Schuwerk, Executive Director of Carbon Tracker. “This is a wake up call for Californians; it shows that if you committed every penny of future profits from California’s upstream oil and gas production to plugging and reclamation, the state will likely be billions short. But today, none of that money is earmarked for decommissioning. The report also shows that delay is not the state’s friend—every year this is not addressed there will be a smaller pool of future cash flows available to fund decommissioning.”